Rio Tinto could more than halve its debt levels by the end of the year, following Amcor’s offer to buy most of Rio’s Alcan Packaging unit for $2bn (£1.2bn).
Ahead of its half-year results, investors have been totting up non-core asset sales this year by the miner.
Rio entered 2009 with $38.7bn in net debt, a burden that sent it on a fundraising drive. That figure could fall to about $18bn if a series of asset disposals are added to the proceeds of its $15.2bn rights issue.
As it sold off non-core businesses it also agreed a controversial cash infusion from Chinalco, a Chinese state-owned mining company, only to spurn Chinalco and launch a UK rights issue while agreeing a deal with rival BHP Billiton.
Rio will reveal that net debt has changed little from the $37.8bn it reported in the first quarter to March 31. A slight reduction reflects $864m in net proceeds from the disposal of Brazilian potash assets and a Chinese aluminium venture completed early in the year.
In the second and third quarters, Rio launched a $15.2bn rights issue and agreed three asset disposals totalling $4bn. But none of these events completed by June 30, will feed through to the first half results.
Four separate asset sales are awaiting regulatory approvals and could complete by the year end. This includes the offer from Amcor, an Australian packaging manufacturer, to buy the bulk of Alcan Packaging.
Rio inherited a large packaging business that makes everything from drink cans to cigarette wrappers when it bought Alcan, the Canadian aluminium producer, for $38bn in 2007.
Finding no buyer for the entire business, Rio has sold it off in pieces. In July it agreed to sell the business’s US food packaging unit to Bemis for $1.2bn.
On top of that Rio agreed the sale of the Jacobs Ranch coalmine in the US to Arch Coal for $761m in March.
It is also awaiting approval for the sale of Brazil’s Corumba iron ore project to Vale for $750m.
Rio could realise gross proceeds of $4.7bn by the year end from the four sales. When added to the proceeds from the rights issue, Rio could cut its net debt to about $18bn.
Fees, regulatory delays and deal terminations could make that figure optimistic. But the miner has other fundraisings in the works.
Last week it dusted off a plan to sell its US coal operations through an initial public offering. It plans to complete the IPO by the end of the year. That could yield $1bn to $2bn.
“In one year, Rio’s net debt could be below $10bn, and then the company will be talking about buying back shares,” said Michael Rawlinson, mining analyst at Liberum Capital.
But analysts expect Rio to continue its asset sale programme. The miner was famed for financial conservatism before the Alcan acquisition weighed down the balance sheet. The shares rose 37p to £22.83.
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