By Gillian Tan and David Winning
SYDNEY--KKR & Co. LP (KKR) is weighing a bid for Rio Tinto
PLC's (RIO) majority stake in an Australian copper-gold mine,
people familiar with the matter said Monday, in a sign that private
equity firms are hunting for bargains among assets no longer wanted
by major resources companies.
The move is unusual for KKR which has placed only a few bets on
resources in the past, preferring to invest in sectors such as
healthcare, financial services and retail. Most of its earlier
resources deals were focused on the U.S. energy sector, especially
shale gas producers, or companies generating renewable
electricity.
KKR is examining Rio Tinto's 80% stake in the Northparkes
copper-gold mine in Australia's New South Wales state ahead of a
deadline in mid-May for initial bids, the people said. It isn't
known if KKR has hired an investment bank to review an offer, but
the private equity firm counts former Rio Tinto Chief Executive
Leigh Clifford as a senior adviser to its board.
Rio Tinto hired Macquarie Group to find a buyer for its stake in
Northparkes, The Wall Street Journal reported earlier this month,
citing people familiar with the matter. Units of Japan's Sumitomo
Group own the remaining 20% interest in the mine.
KKR declined to comment. Rio Tinto didn't respond to requests
for comment.
Northparkes is among several assets that Rio Tinto put up for
sale as it focuses on cutting costs and bolstering its balance
sheet under the stewardship of Sam Walsh, who took over as chief
executive in January. Rio Tinto hasn't confirmed Northparkes is for
sale, although it has several other assets on the block, including
its diamonds unit and the Pacific Aluminium division that houses
about a dozen aluminum assets.
Analysts at Commonwealth Bank of Australia late last month said
Rio Tinto had the potential to realize US$13.5 billion from asset
sales and selling its 80% stake in Northparkes could raise as much
as US$1 billion.
Rio Tinto acquired Northparkes as part of the 3.5 billion
Australian dollar (US$3.6 billion) acquisition of North Ltd. in
2000, outbidding Anglo American PLC (AAL.LN). The mine exports most
of the copper concentrate it produces to customers in Japan, China
and India. According to Rio Tinto, extensions to the mine since it
began production in 1994 have extended its expected life to
2024.
Buyout firms like KKR have traditionally shied away from
investing in mines directly as they lack the expertise to handle
mining operations that are often technically challenging and
exposed to volatility in metals prices. Lenders are also cautious
about providing private equity firms with large amounts of debt for
resources deals, given their track record of success is less proven
than in other sectors.
KKR tapped investors for US$1.2 billion for its Natural
Resources Fund in 2010, which was its first dedicated fund
targeting the commodities sector, according to the company's annual
report published in February. The fund is targeting investments in
"natural resources assets, such as oil and natural gas properties"
that are deemed non-core by their sellers, the report said. About
one-third of the fund has been invested so far.
Another US$1 billion has been committed by investors toward
resources deals, but this money doesn't sit in a single fund, the
annual report said. Some of KKR's other vehicles, including KKR
Financial Holdings LLC (KFN), can also invest in natural
resources.
-Write to Gillian Tan at gillian.tan@wsj.com and David Winning
at david.winning@wsj.com
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