Asset Sales Helped Big Mining Companies Outperform The Rest Of The Market In 2018
Tim Treadgold
A year of asset sales by the world's two biggest mining companies, BHP and Rio Tinto, has been capped by a $3.5 billion deal which will see Rio Tinto exit the controversial Grasberg copper and gold mine in Indonesia -- thought more sales are possible with buyers being sought for two of Rio Tinto iron ore projects.
Success in offloading its Grasberg interest was completed by Rio Tinto last week in a series of transactions with the Indonesian government-owned Inalum and U.S.-based Freeport McMoRan Inc.
Haul trucks transport ore from the open pit at the Grasberg copper and gold mining complex in Papua province, Indonesia (Photo: Dadang Tri/Bloomberg)© 2015 BLOOMBERG FINANCE LPQuitting Grasberg, a mine high in the mountains of the Indonesian province of Papua, followed a series of asset sales by Rio Tinto, including coal mines in Australia and an aluminum smelter in northern France.
Rio Tinto's Chief Executive Jean-Sebastien Jacques said the Grasberg sale lifted total proceeds from asset divestments over the past two years to $11 billion.
"Over that same period, we have returned or announced and intention to return over $18 billion to our shareholders, demonstrating our disciplined approach to capital allocation a commitment to continuing to deliver sector-leading returns," Jacques said.
A soldier stands guard in front of a haul truck at the Grasberg copper and gold mine in Indonesia. (Photo: Dadang Tri/Bloomberg photocredit)© 2015 BLOOMBERG FINANCE LP
BHP's biggest sale of the past 12-months was the its U.S. onshore oil and gas assets for $10.8 billion.
Over the past 12 months, BHP's share price on the Australian stock exchange has risen by 14%, even as the ASX's broad-based All-Ordinaries index fell by 10.2%. Rio Tinto, over the past 12 months, has risen by 3.5%.
Offloading surplus assets has helped both companies retire a large amount of debt.
Macquarie Bank estimates that BHP's net debt position has declined from $26.1 billion in 2016 to $10.9 billion, with a further decline to $6.5 billion expected in the year 2021.
Rio Tinto could do better. Its net debt position, according to Macquarie, has declined from $9.5 billion in 2016 to $4 billion, with additional debt retirement over the next few years expected to see the big miner slip into a net cash positive status by the year 2020.
One of the keys to the transition from net debt to net cash will be future asset divestments, with the Simandou iron ore project in the African country of Guinea still up for sale after the collapse of a $1 billion deal to offload the asset to China's Chinalco, while a controlling stake in the Iron Ore Company of Canada (IOCC) is reportedly heading for a separate stock exchange listing.
The possible spin-off of IOCC on the New York and Toronto stock exchanges could put a value of $4 billion on the business, according to Bloomberg.
Rio Tinto owns 58.7% of IOCC with minority partners that include Japan's Mitsubishi with a 26.2% stake and the Labrador Iron Ore Royalty Corporation owning 15.1%.
I studied geology in the 1960s and worked for a small mining company before getting a start in journalism during the 1969 nickel boom. Since then I've covered repeated booms and busts in the commodities sector for a passing parade of newspapers, magazines and website. I am a...
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Tim Treadgold has been writing about the mining and oil industries for more than 40 years
www.fotavgeia.blogspot.com
Tim Treadgold
A year of asset sales by the world's two biggest mining companies, BHP and Rio Tinto, has been capped by a $3.5 billion deal which will see Rio Tinto exit the controversial Grasberg copper and gold mine in Indonesia -- thought more sales are possible with buyers being sought for two of Rio Tinto iron ore projects.
Success in offloading its Grasberg interest was completed by Rio Tinto last week in a series of transactions with the Indonesian government-owned Inalum and U.S.-based Freeport McMoRan Inc.
Haul trucks transport ore from the open pit at the Grasberg copper and gold mining complex in Papua province, Indonesia (Photo: Dadang Tri/Bloomberg)© 2015 BLOOMBERG FINANCE LPQuitting Grasberg, a mine high in the mountains of the Indonesian province of Papua, followed a series of asset sales by Rio Tinto, including coal mines in Australia and an aluminum smelter in northern France.
Rio Tinto's Chief Executive Jean-Sebastien Jacques said the Grasberg sale lifted total proceeds from asset divestments over the past two years to $11 billion.
"Over that same period, we have returned or announced and intention to return over $18 billion to our shareholders, demonstrating our disciplined approach to capital allocation a commitment to continuing to deliver sector-leading returns," Jacques said.
A soldier stands guard in front of a haul truck at the Grasberg copper and gold mine in Indonesia. (Photo: Dadang Tri/Bloomberg photocredit)© 2015 BLOOMBERG FINANCE LP
BHP's biggest sale of the past 12-months was the its U.S. onshore oil and gas assets for $10.8 billion.
Over the past 12 months, BHP's share price on the Australian stock exchange has risen by 14%, even as the ASX's broad-based All-Ordinaries index fell by 10.2%. Rio Tinto, over the past 12 months, has risen by 3.5%.
Offloading surplus assets has helped both companies retire a large amount of debt.
Macquarie Bank estimates that BHP's net debt position has declined from $26.1 billion in 2016 to $10.9 billion, with a further decline to $6.5 billion expected in the year 2021.
Rio Tinto could do better. Its net debt position, according to Macquarie, has declined from $9.5 billion in 2016 to $4 billion, with additional debt retirement over the next few years expected to see the big miner slip into a net cash positive status by the year 2020.
One of the keys to the transition from net debt to net cash will be future asset divestments, with the Simandou iron ore project in the African country of Guinea still up for sale after the collapse of a $1 billion deal to offload the asset to China's Chinalco, while a controlling stake in the Iron Ore Company of Canada (IOCC) is reportedly heading for a separate stock exchange listing.
The possible spin-off of IOCC on the New York and Toronto stock exchanges could put a value of $4 billion on the business, according to Bloomberg.
Rio Tinto owns 58.7% of IOCC with minority partners that include Japan's Mitsubishi with a 26.2% stake and the Labrador Iron Ore Royalty Corporation owning 15.1%.
I studied geology in the 1960s and worked for a small mining company before getting a start in journalism during the 1969 nickel boom. Since then I've covered repeated booms and busts in the commodities sector for a passing parade of newspapers, magazines and website. I am a...
MORE
Tim Treadgold has been writing about the mining and oil industries for more than 40 years
www.fotavgeia.blogspot.com
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