Rio Tinto Asset Sales Draw Early Interest From Buyers

MELBOURNE -(Dow Jones)- Buyers are beginning to signal interest in US$15 billion worth of assets that Rio Tinto Ltd. (RTP) plans to sell and the miner is warning against low ball offers.

In its defense to a takeover approach from rival BHP Billiton Ltd. (BHP.AU), Rio Tinto said last week it expects the assets sales to raise at least US$15 billion, which it will use to pay down some of the US$40 billion in debt it took on to fund its takeover of Alcan Inc. (AL).

With the cost of developing new projects soaring in the overheated mining industry, the asset sales offer an opportunity for miners around the globe to quickly boost production and lift their exposure to the global commodities boom.

The miner is preparing to seek expressions of interest for the assets and people close to the company have warned potential buyers that Rio Tinto is not conducting a fire sale and will be happy to keep assets if it does not receive bids that reflect full value.

Mining assets up for sale include Rio Tinto’s thermal coal mines in the U.S, the Northparkes copper-gold mine, the Kintyre and Sweetwater uranium projects, a stake in the Cortez gold operation and all of the company’s talc mines across the globe.

Australian uranium miner Paladin Ltd. (PDN.AU) says it could be interested in the Kintyre uranium project in the state of Western Australia if it is formally put up for sale.

"Like everything, we will have a look," Managing Director John Borshoff told Dow Jones Newswires.

Rio Tinto has not released details of the resource at Kintyre, but the Uranium Information Center in Australia estimates there is a resource of 36,000 tons of uranium with plenty of scope for upgrades.

The key barrier to development of that resource is the West Australian state government’s stiff opposition to uranium mining.

Potential buyers also need to be capable of negotiating terms with the traditional owners of the land, the Martu people, Borshoff said.

Canada’s Mega Uranium has said it has already had some preliminary discussions with Rio Tinto about the purchase of Kintyre.

Others tipped by analysts as likely bidders include Canada’s Cameco Corp. (CCJ) and Uranium One Inc. (UUU.T), France’s Areva (CEI.FR) and Australia’s Toro Energy (TOE.AU) which is 47.2% owned by Oxiana Ltd. (OXR.AU).

Areva has been building stakes in a number of Australian uranium projects but the Managing Director of its Australian business Philippe Portella said it is too early to comment on whether it would bid for Kintyre.

"We are here and we are looking for opportunities but on this one we have nothing to say because for the time being there is nothing officially announced," he told Dow Jones Newswires.

Analysts said the Canadian uranium players are keen to lock in uranium supply and are likely to be willing to pay more than their Australian rivals and be less concerned by the prospect of waiting for a change of government to bring the project into production.

The asset sale expected to generate the most interest among Australian miners is Rio Tinto’s 80% stake in Northparkes copper and gold mine in the state of New South Wales.

Oxiana, Zinifex Ltd. (ZFX.AU), Perilya Ltd. (PEM.AU) and Newcrest Mining Ltd. (NCM.AU) have all been tipped as potential buyers of the operation, which has the capacity to produce about 60,000 metric tons of copper and 50,000 ounces of gold a year and is expected to be in production until at least 2015.

Oxiana Chief Executive Owen Hegarty has said Rio Tinto assets could be of interest depending on price and a spokesman for the firm said the miner is on the lookout for acquisitions.

"Any time we can buy good quality assets at a price that is attractive then we are very interested in doing so," he said.

Perilya Chief Executive Len Jubber has said the company will take a look at Northparkes if it comes on the market, although it is more focused on its own projects at the moment.

Zinifex is also expected to have a look at Northparkes, as the miner is cashed up from the spin off of its smelting business and is targeting copper acquisitions.

Newcrest is seen by some as a potential bidder, as it has operations nearby at Cadia and is familiar with the geology and mining methods at Northparkes. But other analysts said the operation would likely be too small for the miner.

Rio Tinto had previously announced plans to sell Rio Tinto Energy America, one of the biggest thermal coal producers in the U.S., which analysts believe could fetch as much as US$4 billion.

Potential buyers for the U.S. coal business include Peabody Energy Corp. (BTU), Arch Coal Inc. (ACI) and Consol Energy Inc. (CNX).

However, Peabody and Arch together with Rio Tinto dominate coal production in the Powder River Basin in Wyoming and could face competition concerns if they decide to bid.

Rio Tinto has also flagged the possible sale of its 40% stake in the Cortez gold operations in Nevada, which analyst say may well be sold to its joint venture partner Barrick Gold Corp. (ABX), which has some preferential rights.

The other assets tagged for sale are Rio Tinto’s talc mines across the world, the Sweetwater uranium project in Wyoming, the Greens Creek mine in Alaska and Alcan’s packaging and engineered products division.

Rio Tinto has said there are other assets not yet identified that could be put up for sale.