MELBOURNE/LONDON: In its latest effort to slash costs as commodity prices fall, Rio Tinto is letting go its energy chief and rolling its coal and uranium businesses into two other units, a move that could signal its intention to divest its coal assets.
The world’s second-largest mining company said on Friday it will fold its coal mines in Australia into the copper division while its smaller uranium business will be added to the diamonds and minerals group, leaving the company with four product groups, including iron ore and aluminium.
Energy chief executive Harry Kenyon-Slaney, a 25-year veteran of the company, will leave immediately and the company said that is also cutting some other corporate jobs.
Rio makes about 80 percent of its earnings from iron ore while its coal division was lossmaking last year.
“This could be the first step in a longer term exit from coal for Rio. There would be buyers of these assets if Rio wants to sell,” analysts at Jefferies said in a note.
Jefferies puts the net present value of Rio’s coal division at around $3.6 billion.
“These changes are part of our continuing business transformation to reduce costs, simplify and strengthen our company and deliver sustainable value for shareholders,” Rio Tinto Chief Executive Sam Walsh said in a statement.
The focus of most mining companies has switched from a race for growth and diversification in the boom years up to 2011, to simplification and cost-cutting more recently.
Rio Tinto’s rival BHP Billiton is also reorganising its business. It has picked five key divisions and is hiving-off the others in a separate company, South 32.
“Four or five years ago, when everyone’s focus was on expansion, it would have been unthinkable for Rio to get rid of its coal division but now that the focus is on margins rather than size, this could be a good move,” said Nik Stanojevic at British wealth manager Brewin Dolphin. “These assets could be worth a lot more to other companies such as Glencore rather than to Rio.”
In early 2014 Rio and rival Glencore started discussions over a joint venture of their neighbouring coal assets in the Hunter Valley in Australia but a deal was never struck. Glencore also made a takeover approach for Rio Tinto last summer which was rebuffed.
Other companies such as Peabody Energy and BHP Billiton which have operations in the Hunter Valley could also be potential buyers. Former Xstrata CEO Mick Davies, looking to rebuild a mining company from scratch after Glencore’s takeover of Xstrata in 2013, would also be interested in Rio’s assets, sources said.