Rio Tinto Group, an Anglo-Australian company, is selling mining assets in Argentina, Brazil and Canada to Brazilian competitor Vale do Rio Doce for US$ 1.6 billion in an attempt to reduce its 39 billion debt load. The group also admitted it was considering a big equity issue.
Vale, owner of the former Inco nickel giant in Canada and the world's top iron ore miner, is buying Rio's potash operations in Argentina for US$ 850 million and its Corumbá iron ore mine in Brazil for US$ 750 million.
Rio Tinto has already sold US$ 3.1 billion of assets, including 50% of a Chinese aluminum smelter, while still looking for buyers of its US coal business and Alcan's packaging business.
Rio Tinto said the latest sales represent a major step towards meeting its goal to reduce its US$ 39 billion debt load by 10 billion. Most of that debt was incurred for the 2007 takeover of Canadian aluminum group Alcan at the top of the commodities boom. Rio shares gained almost 5% in London on Friday.
The company confirmed it is considering an equity issue. But analysts said the latest asset sales will ease the pressure to raise cash in a way that would dilute existing shareholders' interests.
Guy Elliott, Rio Tinto's chief financial officer, said: "This transaction demonstrates the depth and quality of our asset portfolio and our ability to unlock value for shareholders despite tough credit markets and economic conditions".
These assets had not been previously flagged as being for sale by the company. During 2008 Rio collected almost 3 billion from asset sales.
Citigroup analyst Clarke Wilkins said the sale "highlights good prices for assets can still be achieved in the current market. It should also go a fair way to removing persistent market talk that the company needs to do a rights issue to meet the debt reduction target."