MARKETS SPECTATOR: The great Rio rejig?

Sam Walsh may not have convinced investors with his asset divestments to date, but analysts close to the company are flagging bigger moves to come.

Is the pressure getting to Rio Tinto chief executive Sam Walsh? Today’s announcement the miner has got $US325 million in cash for a US nickel-copper mine and mill suggests a disinvestment plan is gathering place. Walsh has already made a commitment to sell Pacific Aluminum. Its diamond business is on the block. There are reports the company, decried by Rio as media speculation, has lined up potential buyers of its Australian coal assets with the help of Deutsche Bank.

Rio’s chief financial officer Chris Lynch said today in a statement: “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”.

Walsh and Lynch, in chats with friendly analysts, have all but confirmed an asset sale process that is bigger than the company has publicly admitted. Walsh and Lynch want 12 months to get Rio’s business back in order and that means asset sales beyond aluminum and diamonds. The two top Rio executives are pursing sales in combination with $US5 billion in cost savings over the next two years. Total capital expenditure will be slashed from what Walsh describes as a “peak” in 2012 of $US17.4 billion.

Last month at Rio Tinto’s annual general meeting in Sydney, the mining company’s chairman Jan du Plessis and Walsh were at pains to put on record the company’s efforts of “disciplined capital management” and a pursuit of  “greater value for shareholders”.

But some aren’t convinced. Analysts, notably Citigroup’s Clarke Wilkins, have been scathing in their assessment of the Rio chief’s commitment to the $US3.7 billion port and rail expansion for the company’s Pilbara iron ore business. Wilkins wants cash returned to shareholders. Walsh will have to do more than sell a small business in rural Michigan to convince his skeptics that he is fundamentally running the business differently than his fired predecessor.

Rio shares have dropped 3.3 per cent in last 12 months compared with the S&P/ASX200 Index’s 16 per cent gain during the same period. Yesterday, Rio’s shares in Australian trading fell 17 cents, or 0.3 per cent, to $52.83.

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