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Mining giant Rio Tinto plc (LSE:RIO) has agreed to sell its nickel-and-copper mine in United States as part of its cost-cutting measures, the Anglo-Australian firm divulged earlier today.
In a statement, Rio Tinto said it has reached a binding agreement to sell the Eagle Project for US$325 million in cash to Toronto-based firm Lundin Mining Corporation. The sale is expected to be completed within the third quarter of this year.
The Eagle Project is an underground mining operation that contained the Eagle deposit discovered in 2002. Rio Tinto estimated it will produce 17,000 tonnes of nickel and 16,000 tonnes of copper annually, for eight years – its projected life of mine. Construction had begun in 2010 and the project is expected to be operational by the fourth quarter of 2014.
Rio Tinto’s bottom line, along with other mining companies’, has been hurt by rising costs and falling commodity prices, leading the company to embark on a divestment programme following an end-year loss in 2012.
“The sale of Eagle demonstrates our renewed focus and discipline in the way we allocate capital,” Chris Lynch, the firm’s Chief Financial Officer, commented on the sale.
“We are making good progress on a number of other potential divestments as part of our goal to achieve substantial proceeds from divesting non-core assets,” Lynch added.
Two days ago, Wall Street Journal reported Rio Tinto had received three potential bidders, including Chinese and Indian firms, for its stakes in coal assets worth about US$3 billion in Australia.
Unique Opportunity
On the part of Lunmin, the acquisition represents a “unique opportunity”, with President and Chief Executive Officer, Paul Conibear, saying Eagle Project is in line with the company’s mining assets and focus on high quality, advance stage assets in low risk areas.
Lunmin estimated it will spend a further US$400 million to bring the project, now just over 50% complete, into production.
The announcement, however, resulted in a drop in Rio Tinto’s share price in early Thursday trading in London. Share price fell by 36.5 pence, or -1.4%, to £26.56, as investors realised the firm will take a loss of about $30 million on the sale.
Original capex estimate for the project was at US$770 million, with about US$355 million already spent, whilst Rio Tinto will only be paid US$250 as purchase amount plus US$75 million for reimbursement of expenditures since the beginning of the year until the transaction is completed in July.
