Lowering the sales

Rio's asset sale woes another case of bad timing

In the business of buying and selling mining assets, Rio Tinto seems to be dancing with two left feet. Like many of its rivals, the Anglo-Australian miner overpaid during the boom years. Now that the good times have faded, Rio can't get the price it wants on assets that are surplus to somewhat shrunken requirements.

Pacific Aluminium is the latest casualty. Announcing otherwise decent first-half results on Thursday, Sam Walsh, the new chief executive, said Rio had shelved a planned disposal of this gaggle of mediocre smelters and bauxite assets in Australia and New Zealand. The unit has been for sale for two years, part of Rio's effort to undo some of the damage from the top-of-the-market acquisition of aluminium producer Alcan. But bidders have been cautious, no wonder, with the aluminium price more than 40 per cent below its not particularly high 2008 peak. So, Pacific will now be folded back into Alcan.

The retreat follows June's decision to scrap a sale of Rio's sub-scale but profitable diamonds business. And three high-profile bidders recently dropped out of an auction for the company's stake in Canada's biggest iron-ore mine, according to Reuters.

These setbacks are not disastrous. Rio has excellent cashflow, new low-cost iron-ore capacity coming on stream and debt has shrunk from $40 billion to $22 billion-thanks in large part to the $15-billion of disposals over five years. Some recent sales, including offloading Australian copper mine Northparkes for $820 million last month, have gone well. Costs and capital expenditure both fell in the first half.

Still, Rio's difficulty offloading some higher-profile assets illustrates miners' struggle to time the cycle right. The worst deals of the past decade - like Alcan - came from companies rushing to grab assets when they believed in the existence of a multi-decade super-cycle. They overinvested in new capacity and overpaid for acquisitions.

The cycle turned out to be normal rather than super -supply has grown faster than demand and prices, while still high by historic standards, have fallen. Any miner trying to shed humdrum or non-core businesses faces a shortage of buyers and stiff competition from rivals with the exact same strategy.