SYDNEY-- Rio Tinto PLC has agreed to sell its Mozambique coal
assets to an Indian investment group for $50 million, marking the
end of one of the mining giant's costliest deals during the
commodities boom.
International Coal Ventures Private Ltd. has agreed to buy the
business that, alongside the 2007 acquisition of Alcan Inc., was
one of two ill-timed acquisitions by Rio that led to last year's
departure of former Chief Executive Tom Albanese.
Rio acquired the troubled coal business in 2011 through its $3.7
billion takeover of Riversdale Mining Ltd., as coal prices were
rocketing on ballooning demand from Asia and supply disruptions in
major coal-producing countries.
But last year, it disclosed a $2.9 billion impairment charge
against the business after building the required infrastructure
proved more challenging than originally expected.
Investors chalked Rio's loss on its investment up to another
poorly timed mining deal.
Rio Tinto bought Canadian aluminum maker Alcan for $38.1 billion
when prices for that metal were at their highest in two decades,
paying a 65% premium.
"This is all the hangover from that party," said Neil Gregson, a
fund manager at J.P. Morgan Asset Management who specializes in
resources.
Coal prices have fallen by as much as two-thirds since 2011 as
new mines planned during the boom times moved into production.
Oversupply has emerged just as demand growth from key buyers such
as China has slowed.
Falling coal prices have forced mining companies including BHP
Billiton Ltd. and Anglo American PLC to review their operations,
resulting in staff cutbacks, shelved expansion plans and asset
sales. Glencore is also due to shutter one of its Australian coal
mines in the coming months.
In Mozambique, Rio Tinto had planned to ship the coal along the
Zambezi River. That proved unworkable because of problems
encountered dredging the river and securing the required government
approvals. The coal's high ash content also required costly
processing.
Rio Tinto--which derives the majority of its earnings from its
Australian iron-ore export business--said it expects to complete
the sale of its Benga coal mine and other projects in the Tete
province of Mozambique before the end of September.
International Coal Ventures was set up in 2009 to buy assets
abroad by government-run companies including Steel Authority of
India Ltd., Coal India Ltd. and power producer NTPC Ltd. The deal,
expected to be the Indian company's first, will help provide coking
coal for local steelmakers.
In the first half of 2014, Rio Tinto's Mozambique unit produced
246,000 metric tons of hard coking coal, used in steelmaking, and
230,000 tons of thermal coal, used to generate electricity.
Rio Tinto has been unloading, or trying to unload, unwanted
assets to help bolster its balance sheet and secure its single-A
credit rating. Last year, it agreed to sell its stake in the
Clermont coal mine in eastern Australia for about $1 billion to
Glencore PLC and Japan's Sumitomo Corp. The company also has
targeted a near-halving in its annual capital expenditure on
projects.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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