Rio Tinto’s cleanup efforts
Like BHP Billiton Limited (ADR) (NYSE:BHP), Rio Tinto plc (ADR) (NYSE:RIO) is ready to cut the fat. The company claims it is going to reduce costs and debt and serve up more value for shareholders, but Rio Tinto simply is not having as much luck as BHP Billiton.
According to Reuters, BHP Billiton Limited (ADR) (NYSE:BHP) has sold over $4.6 billion in assets within the past year. Rio Tinto also had a variety of assets for sale, but has only managed to sell the Eagle nickel mine for $325 million.
Dominion Diamond Corp (NYSE:DDC) expressed interest in Rio Tinto plc (ADR) (NYSE:RIO)’s share of Diavik if the price is right, but Rio Tinto’s decision to retain its diamond properties suggests it’s not.
Otherwise, Dominion Diamond Corp (NYSE:DDC) appears in good financial shape to make the purchase. As of the fiscal quarter ended April 30, the company had over $231 million in available cash and Ekati had $65 million and a diamond inventory valued at $127 million. In addition to existing credit agreements, Dominion Diamond Corp (NYSE:DDC) had also arranged some $765 million in credit facilities to purchase Ekati, but then decided to buy the mine with cash.
If the transaction were to happen, Dominion Diamond Corp (NYSE:DDC) would need to deepen its debt but it is still seen as a potentially good opportunity, especially if the diamond market rebounds later this year it expects. But for Rio Tinto it amounts to only a slight lightening of the load.
Among the items Rio Tinto plc (ADR) (NYSE:RIO) wants to sell are coal and aluminum assets, two more fatty divisions that were responsible for over $14 billion in write-downs last year and the departure of Tom Albanese, formerly the company’s CEO.
Put Rio Tinto on watch
In a world where companies are judged by the ability to manage their businesses and meet their goals, Rio Tinto plc (ADR) (NYSE:RIO) would certainly warrant caution. There is so much on this company’s plate that even it doesn’t find appetizing.
Sam Walsh, the new CEO, has assured shareholders that he is going to address the company’s $19 billion debt with proceeds from asset sales.
The company’s track record is a fair reason to be skeptical, but there is another very good reason for skepticism. Other miners, such Vale and Barrick Gold, are also planning to get rid of unwanted assets to shape up their finances.
BHP Billiton’s debt is estimated to have ballooned to record levels — above $30 billion — and the company is pressed to sell assets, some of which compete with items on Rio Tinto’s sale list. But the pools of buyers and capital to make these purchases is very limited. Like BHP Billiton Limited (ADR) (NYSE:BHP), Rio Tinto plc (ADR) (NYSE:RIO) is likely to be stuck with many unwanted assets, which could be a real drag given the weak state of the commodity markets. Investors should hold tight and see whether management is able to steer Rio Tinto or whether the company’s fat portfolio dictates the course.
Michelle Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Rio Tinto Stuck With Diamonds originally appeared on Fool.com.
Michelle is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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