Exclusive: Rio Tinto Exploring Uranium Sale

Issue 179, March 2017

Rio Tinto has mandated banks to help shift its portfolio of uranium mines, according to separate sources in London and Australia, as the company continues to dice-up assets in its Energy & Minerals division.

Rio's uranium business is seen as tired and largely depleted. Its Rossing mine in Namibia has been open since the 1970s, whilst the mining permit at its Ranger operation in Australia, which is owned by ERA, a separate listed subsidiary, is due to expire in 2021, forcing Rio to shelve expansion plans at the site, citing “challenges.”

A new owner could breath new life into the assets however, if it could negotiate an extension at Ranger. ERA is currently valued on the ASX at A$330m ($254m). Its shares have surged with uranium this year, on the back of production cuts by Kazakhstan's state-owned uranium miner.

Rio's uranium portfolio also includes the Roughrider discovery in Canada, which it bought in 2012 for C$578m ($572m). Roughrider sits in one of the world's largest uranium basins and is expected to attract interest.

Small Beer”

Cash-flowing uranium assets can be tricky to sell, because “the wall of remediation liabilities is enormous” and the field of bidders is limited, according to banking sources. Majors always want to “sell questionable assets but to guys who are whiter than white”. Large, old mines however can be attractive for buyers with a short-term investment horizon, able to squeeze out additional production.

“It is small beer in the Rio context,” says Bernstein analyst Paul Gait, who has praised Rio Tinto as a cash machine. “These aren't exactly the motherlode mines, but you never know when the cycle will turn, or exactly what the future holds.”

Rio Tinto's interest in exiting uranium is “probably the worst kept secret” in the sector, one corporate adviser says. Rossing was floated past buyers two years ago, but asset sales ran out of steam under former CEO Sam Walsh, who made $2.8bn of disposals, mostly in his first eighteen months. The company has adopted a more concerted approach to deals under Jean-Sebastian Jacques, who was promoted to group CEO in July last year.

His plans to move out of uranium point to a wider sell-down of Rio's Energy & Minerals division, following the dismissal of Alan Davies, who ran the unit, at the end of last year. Davies' controversial departure was quickly followed by the sale of the group's thermal coal mines, sitting in the same division.

The IOC mine in Canada is understood to be up next, though Rio Tinto is not intent on dumping everything in the division, having grown attached to its Jadar lithium deposit in Serbia.

Davies has been replaced by Bold Baatar, a no-nonsense former banker from JP Morgan, who previously advised Jacques on the Oyu Tolgoi copper mine in Mongolia. Baatar sees his division as an “incubator” for smaller businesses, bringing them along, either to be sold, or to graduate to other parts of Rio's portfolio. Analysts describe it as a collection of “unloved assets.”

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