Rio Tinto has washed its hands of its disastrous $3.9 billion Riversdale Mining acquisition, by announcing a sale of its Mozambique coal assets for just $US50 million ($53 million).
Completed in 2011, the Riversdale acquisition famously led to the sacking of former chief executive Tom Albanese within two years, when the assets were impaired by $US3 billion dollars. The coal chief who led the acquisition, Doug Ritchie, was also sacked over the purchase.
A further $US470 million was written off the assets in February, after reviews of the mine plan. With coal prices falling even further since then, the assets have lost almost all their value in just over three years.
The assets, which were acquired by Riversdale in 2003, have been bought by an organisation set up by the Indian government known as International Coal Ventures Pty Ltd.
ICVL was set to acquire coal assets outside India, and today’s transaction has given the group control of large amounts of both coking coal and thermal coal. ICVL will take Rio’s 65 per cent stake in the Benga mine, a mining agreement for the Zambezi project, and numerous exploration licences.
But getting the coal back to India will be the difficult part, with Rio previously being hampered by the Mozambique government’s opposition to barging the coal down the Zambezi River.
Rio will not depart Mozambique entirely, and will continue to hold the Matumba mineral sands assets and a crane depot in the African nation.
The Riversdale assets are not the only coal interests Rio has disposed of today, with its majority-owned subsidiary Turquoise Hill Resources selling about half of its stake in trouble-prone Mongolian explorer South Gobi Resources.
Turquoise Hill, which is developing the Oyu Tolgoi mine in Mongolia, will receive $25.6 million Canadian under the transaction, and will still own about 26 per cent of South Gobi.
Wednesday’s transactions continue a campaign of asset sales that has seen Rio Tinto rake in about $US3.5 billion over the past two years.
Other divestments include the $US1.01 billion sale of a stake in Queensland’s Clermont coal mine, and the $US820 million sale of the Northparkes copper and gold mine in NSW.
The Riversdale disaster will have little impact on the miner’s 2013-14 results, which Rio chief executive Sam Walsh will announce to the market on August 7.
Analysts are expecting net profit for the 2014 financial year to hit $US9.2 billion ($9.8 billion), up from $US3.7 billion ($3.9 billion) in 2013.
Deutsche Bank analyst Paul Young expects earnings in 2014-15 year to rise to $US9.4 billion ($10.0 billion), although whether or not Rio achieves this could depend on the trajectory of iron ore prices, which have fallen 40 per cent since the start of 2014.
Riversdale was created by mining entrepreneurs Michael O’Keeffe and Steve Mallyon, who have both sought to target mining projects in North America since selling Riversdale to Rio.
When interviewed last year , he expressed surprise that the Mozambique assets had blown up in Rio’s face.
''‘We were a company with $500 million in cash, rail, port, wagons, the mine was already developed, the wash plant was going, and they still managed to screw it,’’ he said.
''‘And I don’t want to talk publicly about how that happened, but that’s just an example of how these things work.
‘‘They just think they are sending people from here to there and think ‘oh yeah, how hard can that be?’ And it’s bloody hard. You have to manage it and you have to manage it well.’’.
Late last year Mr O’Keeffe orchestrated the merger of Mamba Minerals, which he chaired, and Canadian iron ore developer Champion Iron Mines. The combined entity is focused on iron ore mining in the Labrador Trough region of Canada.
In April, Street Talk revealed that Macquarie and the Denver-based private equity house, Resource Capital Funds, had agreed to back the venture.
Rio Tinto shares were 32¢ higher at $66.07 at the close of the Australian Stock Exchange on Wednesday. The announcement was made after the market closed.