BREAKFAST DEALS: Rio asset rewind

Rio Tinto's Sam Walsh can't offload non-core assets quick enough, while high-cost gold producers are a species in trouble.

Rio Tinto continues its asset sales drive, but new boss Sam Walsh is finding the same problems as his deposed predecessor Tom Albanese – aluminium is going to be a pain to move. There are gold moves aplenty as the precious metal continues to lose its lustre. Meanwhile, Suncorp has finally sold its ‘bad bank,’ and SCA Property Group is beginning its life after Woolworths with some Wesfarmers-linked assets and a capital raising.

Rio Tinto, Pacific Aluminium, CSR

Rio Tinto chief executive Sam Walsh is barely stopping for breath in his quest to offload underperforming assets. Nor can he afford to.

The Anglo-Australian mining powerhouse is selling the Eagle nickel and copper mining project in the American state of Michigan to Toronto’s Lundin Mining.

The project, which sits on the Michigan’s upper peninsula not far from Toronto, is in the construction phase and is about 55 per cent complete.

“The sale of Eagle demonstrates our renewed focus and discipline in the way we allocate capital," said Chris Lynch, the successor to highly respected chief financial officer Guy Elliott.

“We are making good progress on a number of other potential divestments as part of our goal to achieve substantial proceeds from divesting non-core assets.”

Which naturally brings us to aluminium. Rio has revealed through its accounts in New Zealand that the value of the Tiwai Point aluminium smelter has been written down to a miniscule $14.8 million from $606.9 million.

Tiwai is just one of the portfolio of unwanted assets shoved into Pacific Aluminium by former boss Tom Albanese way back in October 2011. Attempts to sell the 13 assets worldwide have been met with the sound of crickets, which in no small way contributed to the ousting of Albanese.

There have been more murmurs recently that Rio will axe the idea of selling the assets and simply issue shares to existing shareholders as a way of freeing itself of Pacific Aluminium once and for all.

That’s potentially bad news for CSR. Rio owns a majority stake in Tomago Aluminium, while CSR owns 70 per cent of Gove Aluminium Financial, which speaks for a 36 per cent stake in Tomago (AMP owns the remaining 30 per cent of Gove Aluminium).

For some time, CSR has let it be known that if Rio can extricate itself from its unwanted aluminium assets, it might try to piggyback on the move. So far, no such luck.

But CSR isn’t transfixed with the idea of exiting Tomago. In fact the company is now starting to size up acquisitions in the $25 million to $100 million range.

Probably not in aluminium though.

Newcrest Mining, Evolution Mining, Alacer Gold, Aphrodite Gold

The controversy surrounding the broker downgrade of Newcrest Mining in the lead up to its unsightly $6 billion downgrade has taken some of the attention away from one very salient fact – high-cost gold producers as a species are in trouble and opportunity beckons.

Speculation is circulating that Newcrest chief executive Greg Robinson might offload the miner’s 33 per cent stake in Evolution Mining to help keep the balance sheet in order. Thanks to those write-downs, Newcrest’s gearing will double its target range.

Evolution executive chairman Jake Klein says in today’s edition of The Australian Financial Review that he has Newcrest’s full support, or at least that’s his understanding.

If Newcrest were to offload its stake in Evolution, it would amount to little more than house-cleaning. At current prices it’s worth about $150 million.

But it isn’t the only gold miner in the deals headlines. Denver’s Alacer Gold, which is listed on the ASX and the exchange in Turkey, is considering offers for two struggling operations in Kalgoorlie, Western Australia.

The Higginsville and South Kalgoorlie gold pits are expensive producers and don’t match the production of its flagship Copper project in Turkey. Getting rid of them makes sense if even a vaguely compelling offer can be found.

Global giant Barrick Gold is also offloading unwanted assets in Western Australia, which means a buyer (probably Chinese) could snap up a bunch of assets at a bargain, or screw one seller in particular down on price.

Aphrodite Gold boss Wayne Ryder is talking up Chinese interest in The Australian, saying that a lot have come knocking since the price of bullion started to dive.

“They want to get their hands on gold and they make no secret of it,” says Ryder.

Aphrodite’s share price is down 28.6 per cent since mid-February, so there is a context to his talking up Chinese opportunities. But it’s hard to remember a time when Chinese interests weren’t interested in gold.

With the price down, it only makes sense that interest would increase.

Suncorp

At long last, Suncorp boss Patrick Snowball has rid himself of the ‘bad bank’ loans that have taken up so much of his question time with shareholders since taking the reigns in September 2009.

Business Spectator’s Stephen Bartholomeusz kind of closed the book on the story yesterday, so we won’t double up too much here. But for those who aren’t abreast of the details, here are the key points.

Suncorp offloaded the $1.6 billion ‘bad bank’ to Goldman Sachs and got 60 cents in the dollar for it. That equates to a $470 million to $490 million after tax loss.

While it’s difficult to compare this deal to other transactions, 60 cents in the dollar compares favourably to other similar handshakes at 30-40 cents. Blackstone and Macquarie ensured there was some competitive tension in the bidding process.

And finally, Snowball couldn’t be more relieved. National Australia Bank’s Cameron Clyne can only look on with jealousy.

SCA Property Group, Wesfarmers

Woolworths property spin-off SCA Property Group is stretching its wings.

The retail property investor has booked its first deal after being spun-out of the Woolworths juggernaut – a move designed to raise cash for further investments and expansions – is purchasing seven shopping centres in Victoria and Queensland.

Some of the sites are leased to Woolies’ main rival Wesfarmers, via its Coles and Target brands.

SCA is forking over $135.8 million for the portfolio and is raising $90 million at $1.58 a share for the job. That’s a very modest 3.1 per cent discount on the last trading price.

Wrapping up

Leighton Holdings subsidiary John Holland has picked up a $180 million contract to build a business school for the University of Sydney.

They’d better make sure the project comes in on time and on budget, otherwise the odd professor might be tempted to make the classroom a case study.

Fellow National Broadband Network contractor Service Stream has gone into a voluntary suspension as it ponders the future of its troubled joint venture with Lend Lease.

And finally, annoyed retail shareholders in mortgage group RHG, formerly known as RAMS before the GFC came along, have reportedly written to the corporate regulator to express concerns about the takeover offer from former director Trevor Loewensohn and non-bank lender Resimac.

The bidders are offering $130 million for the loan book, which is in the process of winding down but still generates dividends.

The Australian understands that at least one shareholder has written to the Australian Securities and Investments Commission complaining about a lack of transparency as due diligence apparently is underway.

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