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VANCOUVER AND TORONTO – More than five years after pulling off the largest takeover in Canadian corporate history, Rio Tinto PLC is still dealing with the pain.
The multinational miner never truly recovered from the massive debt load it took on to buy Alcan in 2007, paying $38.1-billion (U.S.) for the Montreal aluminum producer at the peak of the commodities market.
Burned by a bad bet on the prospects of the metal used to make pop cans, Rio has had to sell billions worth of mining assets to repair its balance sheet. In January, Tom Albanese, the chief executive officer responsible for the Alcan deal and about $14-billion in acquisition-related writedowns during his tenure, resigned and was replaced by the former head of Rio’s iron ore operations, Sam Walsh.
With aluminum prices still failing to recover as much as many of the other commodities Rio produces and with production costs for most operations continuing to increase, Rio and its new CEO are now putting more assets on the block, including the company’s Canadian iron ore operations in Labrador.
Rio’s 58.7-per-cent interest in Iron Ore Co. of Canada is up for sale and the company has hired investment bankers to facilitate a transaction, according to two sources familiar with the matter.
The banking firms hired are understood to be Credit Suisse and CIBC World Markets. One source said Rio is aiming for a quick deal.
London-based Rio’s stake in IOC could be worth as much as $3.5-billion to $4-billion. Japan’s Mitsubishi Corp. controls 26.2 per cent of IOC and the remaining 15.1 per cent is held by Labrador Iron Ore Royalty Income Corp.
A Rio spokesperson declined to comment. However, Mr. Walsh, asked recently by an analyst about the company’s willingness to sell its stake in IOC said, “I am looking hard at divestments. There are a number of assets for us that are not core or they are underperforming.”
Prospective buyers could include Canada’s Teck Resources Ltd. The Vancouver company, led by CEO Don Lindsay, is Canada’s biggest diversified mining firm and has long coveted the IOC operations as a potential entry point into iron ore production. Teck is already the world’s second-largest exporter of seaborne coking coal used in steel production. Iron ore is the other primary ingredient needed to make steel.
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