Mining giant Rio Tinto will not sell its underperforming Pacific Aluminium, its Australasian aluminium assets amid the mining slowdown.
Rio tried to sell Pacific Aluminium and other assets in a bid to decrease net debt of $22 billion and maintain its single-A credit rating.
Shareholders are insisting mining companies sell assets and cut costs as commodity prices fall and growth prospects in China remain unclear.
The company’s CEO Sam Walsh said it could not manage a “value-drive sale” of its aluminium subsidiary, the Financial Times reported.
“The market was aware PacAl wasn’t going to sell,” Walsh said.
“I am a realist. Let’s get on with life. Running two aluminium businesses within one organisation...that’s not all that productive.”
He said the company would not sell assets at any price simply to “tick boxes”.
According to Rio, the company will incorporate Pacific Aluminium back under its larger aluminium umbrella. Walsh said the assets have to show improvement if it is to stay on in the company.
“I think the market was aware that Pacific Aluminium was not going to sell,” Walsh said.
Walsh said recently two thirds of the company’s asset cuts would be in its aluminium and energy businesses.
Rio sold $1.9 billion worth of assets this year and is looking to slash operating costs by $2 billion this year and $1 billion in 2014.
Rio said its underlying earnings have slipped by 18 per cent to $4.2 billion in the six months to June.
“While the numbers were broadly in line, the market will be less pleased with the news that the PacAl business is now no longer for sale,” an analyst at financial holding company Nomura said.
“The possible sale of PacAl would not have been in anyone’s forecasts, but was a potential surprise positive catalyst for cash flow.”
Rio made $1.3 billion less than last year from product sales. It made $1.5 billion in cost savings and reduced exploration costs.
The company is forecasting $14 billion in capital expenditure in 2013, which is 20 per cent lower than last year’s “peak”.
Rio had hinted it will boost shareholder value by selling underperforming assets like its aluminium and diamond businesses.
But it decided to retain its diamond assets earlier this year. Its diamonds and minerals chief Alan Davies said “the medium to long-term market fundamentals for diamonds remain robust, fuelled by growing demand for luxury goods, in Asia and continuing strong demand in North America.”
Walsh said Rio will make a decision in 2013 about how to develop its Pilbara venture in Australia. It is looking to increase output from 290m tonnes to 360m tonnes.
Analysts recommend Rio develop current mines instead of building new ones to save $3 billion.
Called “Pilbara 360”, Walsh said it “will happen, it will go ahead”.
Australian Mining reported last week Rio Tinto has not paid any mining tax in the first year of the tax after it refunded $74 million by the Australian Taxation Office.