Rio Tinto closes dire chapter with $50m Mozambique coal sale

Rio Tinto is to sell its coal assets in Mozambique for $50m – a fraction of the multibillion-dollar price it paid for them just three years earlier – closing a chapter on one of the most disastrous acquisitions in the miner’s history.

The Anglo-Australian group said on Wednesday it had reached an agreement to sell its Benga mine and other coal projects in the Tete province of Mozambique to International Coal Ventures Private, a company set up by the Indian government.

Rio acquired the coal assets as part of its ill-fated $3.7bn acquisition of Riversdale Mining in 2011, just as a decade-long mining investment boom was coming to an end.

“This represents closure for Rio on one of the weird deals that it did at a time of very lax risk assessment in the company,” said Mark Taylor, resources analyst at Morningstar.

“It paid far too much at the time for assets that weren’t as high quality as it thought.”

Rio is pursuing a strategy of cutting costs and disposing of non-core assets following a decade of heavy investment that caused its debt to balloon and ultimately cost former chief executive Tom Albanese his job.

Mr Albanese was ousted in 2013 following the company’s misguided acquisition of Alcan for $38.1bn in 2007, which later resulted in tens of billions of dollars of writedowns.

Last year, Rio wrote down the value of its acquisition of Riversdale Mining by more than $3bn, blaming the logistical challenges of transporting coal from Tete to the coastline some 600km away. Rio also revised its estimates of recoverable coking coal, which is used in the production of steel, raising questions about due diligence.

Earlier this year, Rio further wrote down the value of its Mozambique assets amid falls in the price of coal.

The price of thermal coal, which is burnt in power stations to generate electricity, has fallen 45 per cent since 2011 to about $70 a tonne. At the same time the price of coking coal, which is used in steelmaking, has fallen from about $300 a tonne in 2011 to about $120 a tonne, prompting an industry-wide shake-out.

International Coal Ventures Private’s decision to buy Rio’s Mozambique coal assets reflects India’s increasing desire to secure energy assets to power its future. The company is a joint venture set up by several state-owned entities with a mandate to buy coal assets.

Its backers include Steel Authority of India, Coal India, Rashtriya Ispat Nigam, National Minerals Development Corporation and National Thermal Power Corporation.

Rio said the deal to sell the Mozambique coal assets was subject to conditions and regulatory approvals and was expected to close later in the year. Rio will manage the mine during the transition to the new owners.

Rio’s Sydney-listed shares closed up 0.5 per cent at A$66.07.