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What Might Aluminum Mean to RIO?
Edited by : AL CIRCLE
1 min read
In mid-2007 Rio Tinto RIO bought Canada's Alcan for $38.1 billion in cash, now widely regarded as one of the most ill-timed acquisitions in corporate history. A key plank was that aluminum prices had not run like the other metals and value remained on the table. But the reason aluminum had not run was that the market was flush with high-cost Chinese output, seemingly immune to the realities pressuring mortal "for-profit" companies. The Chinese production persisted and Rio Tinto sailed headlong into the Global Financial Crisis before it could off-load noncore assets. Gearing spiked to near 200% levels, and if not for the grace of shareholders the company might have been reporting profits in Renminbi and updates in Cantonese.
As history shows, Rio Tinto survived and sold around $7.5 billion net in assets in the three years to 2010. Along with 2009's $15.2 billion rights issue, strong cash flows, and a freeze on capital expenditure, the company is now net debt neutral at the mid-2011 mark. This is in no part thanks to the aluminum division, which continues to underperform in contrast to copper and iron ore.
As history shows, Rio Tinto survived and sold around $7.5 billion net in assets in the three years to 2010. Along with 2009's $15.2 billion rights issue, strong cash flows, and a freeze on capital expenditure, the company is now net debt neutral at the mid-2011 mark. This is in no part thanks to the aluminum division, which continues to underperform in contrast to copper and iron ore.
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