Rio tipped for alumina takeover

Some of the world’s biggest miners are believed to be positioning themselves for transformational takeover deals, with speculation mounting that Rio Tinto could be circling Alcoa’s $5 billion alumina business and that the coal giant Glencore is poised to buy the struggling Western Australia miner Atlas Iron.

Many view Rio Tinto’s move last week to come clean early about its plan to cut dividends as interesting. One theory is that it will be followed by a play for Alcoa’s alumina operation following news of a decision by the company to split its upstream and downstream assets into separate entities.

Rio, which is mulling a move to introduce a Chinese partner to help fund its $US1.9bn Amrun bauxite project on Cape York, is the only diversified player in alumina.

Alcoa’s alumina upstream business, Alcoa Worldwide Alumina and Chemicals, is a partnership between Alcoa, with a 50 per cent stake, Alumina, which holds 40 per cent, and two other Australian companies.

A deal would cement Rio’s position as the largest alumina bauxite player in the world, and some are betting that the miner will approach Alcoa with a bid ahead of the spin-off.

It is worth remembering that the company’s $US38bn acquisition of Alcan in 2007, where it paid a 65 per cent premium for the business, has proved to be less than successful.

Still, two-thirds of alumina bauxite producers are losing money, which means that the industry is ripe for consolidation amid a global resources price downturn and the $65bn resources powerhouse would be well positioned to raise equity to fund the purchase.