Rio Tinto has broken up its energy division in a cost-cutting move that analysts predicted could lead to a sale of its barely profitable coal assets.
The Anglo-Australian group said on Friday its head of energy would leave the business, while its coal and uranium mines would be swept into other operating divisions.
After a decade-long investment boom during which the supply of commodities surged, the sector is caught in a cyclical downturn that is forcing miners to slash costs and simplify their businesses.
BHP Billiton, the world’s biggest mining company by market value, is preparing to spin off a collection of assets into a separately listed company, while Vale, the Brazilian group, is considering a similar move for its base metals division.
Rio’s shake-up bundles its remaining coal assets together with copper mines as one of four operating units. The others are iron ore, aluminium, and diamonds and minerals, which from now on will also house Rio’s uranium mines.
Rio’s coal business has slumped in recent years because of steep price falls. Last year the company sold a Mozambican project that it acquired for $3.7bn at the height of the commodities boom, divesting the asset for $50m.
A person familiar with Rio said there was an internal debate about the future of its coal business, with debate over whether to try to sell or wait for a recovery in the global market.
Christopher LaFemina, an analyst at Jefferies, said Rio’s reorganisation “could be the first step in a longer term exit” from coal.
“Rio’s coal portfolio may be worth more to another owner [who] could possibly extract synergies from the assets,” said Mr LaFemina. “There would likely be other interested buyers of these assets as well, although pricing at this point of the cycle could be a problem.”
Rio’s remaining coal assets are in Australia and are close to those of rival Glencore. The two companies have previously tried to negotiate a joint venture, which faltered over price, while Glencore, led by Ivan Glasenberg, purchased Rio’s stake in Clermont, a thermal coal mine in Australia, for $1bn last year.
“Everyone knows that Glencore is the right owner of these assets, the trouble is Ivan Glasenberg won’t pay a full price them,” said the person familiar with Rio.
Sam Walsh, Rio’s chief executive, has maintained that Rio would be open to selling any assets at the right price but also that divestments were not needed, stressing that the company was not holding “market day at the bazaar”.
Mr Walsh said on Friday the energy reorganisation was a cost-cutting measure. “These changes are part of our continuing business transformation to reduce costs, simplify and strengthen our company and deliver sustainable value for shareholders,” he added.
Like its peers, Glencore has been hit hard by falling commodity prices. In 2015 it plans to slash capital spending on its mines to between $6.5bn and $6.8bn — down from a previously expected $7.9bn.
On Friday, Glencore said it would reduce production at its Australian thermal coal mines by 15m tonnes per year to tackle a global supply glut and “closely align” its output with demand. About 120 jobs will be axed.
Glencore is the biggest producer of seaborne thermal coal, which is used to firepower stations.
Additional reporting by Jamie Smyth
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