* Miners under pressure to focus on core assets
* No quick fix seen for assets in problem commodities
* Some sales seen put on ice, alternatives sought
By Clara Ferreira-Marques
LONDON, March 18 The "for sale" signs which have
been hanging for months over Rio Tinto aluminium
assets and its diamond mines are symptomatic of a bigger mining
The world's biggest miners, under pressure from investors to
aggressively refocus sprawling portfolios, tackle debt and,
potentially, return cash, have lined up billions of dollars of
unwanted assets for sale, from aluminium smelters to nickel
Trouble is, buyers are thin on the ground.
This is the case particularly for the unloved assets at the
top of miners' for-sale lists. Leading producers are
retrenching, smaller "juniors" are strapped for cash and even
once-voratious Chinese buyers are becoming harder to please.
"There is a missing buyer universe. The mid-caps got
consumed in the last deal boom and the juniors can't get
finance," one senior industry adviser said.
Take Rio and BHP Billiton for instance,
which Deutsche Bank analysts estimate could sell $27.5 billion
of non-core, producing operations, plus a further $7.5 billion
of undeveloped assets and stakes in projects or joint ventures.
While a cluster of private investment funds is emerging to
take advantage of depressed mining valuations, industry sources
and analysts question whether even those led by big names such
as Xstrata's departing boss Mick Davis or former JP
Morgan dealmaker Lloyd Pengilly could have the financial
clout to step in.
And, more to the point, whether they would want to.
"You have to tot up emerging market risks, relations with
government, execution risk - plus other deals have been tough,"
said one industry source.
"Is it going to be a jamboree of chased deals? No. Is it
worth gaining the trust of your investors (by being) ... seen to
want to do something? Yes."
BHP Billiton has sold $4.5 billion of assets since last
August and has told analysts and investors it is focusing on a
divestment programme that includes some 10 assets.
The world's largest miner has not commented on the specific
assets, but these are expected to include aluminium, manganese
operations, non-core petroleum operations and the Pinto Valley
mine in the United States.
But while few question the need for BHP and others to sell
assets, its ability to seal more deals is less clear.
In part, this is because of the type of assets being sold.
Analysts have quoted BHP Chief Financial Officer Graham Kerr
as saying this month he expected petroleum assets would be easy
to sell - several parties were keen on in its stake in the
Browse gas project in Australia, eventually sold to PetroChina.
Similarly, any assets in commodities that are in short
supply are likely to attract buyers - copper, for example - or
stakes in another rarity, unwanted iron ore mines.
At Rio Tinto, a stake in Canada's largest iron ore producer
IOC is expected to attract suitors including Glencore,
Canada's Teck - both hungry for the steelmaking
ingredient - and even India's Vedanta.
But many of the assets on the block - Rio's and BHP's
aluminium assets, for example - are in troubled industries seen
to be unlikely to turn around any time soon.
Or, like Rio's diamonds operations, they are in niches too
small for the majors, but where there are also few natural
suitors. With the exception of heavyweights De Beers and
Russia's Alrosa, other players in the industry are small.
Opportunistic private equity funds - so far only fringe
players in the mining industry - have eyed the mines. Apollo and
KKR were both among the suitors for BHP's EKATI diamond mine,
eventually sold to what is now Dominion Diamond Corp.
The scale of the Rio diamond sale is unprecedented in that
sector, but these buyers could struggle with a portfolio on the
books at $1.3 billon and which includes the Argyle mine,
undergoing a costly expansion.
"Investors are very careful of assets that require a lot of
capex (investment) in order to be turned around," Gianmarco
Migliavacca, a senior analyst at credit ratings agency Moody's
said. "Investors will be picky, and as a result disposals in
these structurally challenged commodities will be difficult."
The result could well be that many of the sales are put on
ice, awaiting improved conditions. Some industry advisers say
they are already advocating this strategy, even for majors
which, like Rio, are under pressure to cut debt.
"Our experience is that assets that are sold in distress or
in haste, you often repent at your leisure," outgoing BHP Chief
Executive Marius Kloppers said last month.
BHP, for example, signalled that its nickel business -
considered non-core by the market and where BHP has cut staff -
had benefitted from good exploration results.
Analyst Paul Gait at Sanford Bernstein said miners would
have to carefully consider why assets are on the block,
potentially distributing unattractive businesses straight to
shareholders if no cash buyer materialises - achieving the aim
of keeping management attention on core assets.
"But spinning off to shareholders, of course, does not raise
cash," Gait said. "If the objective is not portfolio
restructuring but to fix the balance sheet, this doesn't help."