Rio Tinto's selling, but who's buying?

By Joseph Chaney and Denny Thomas

HONG KONG/SYDNEY (Reuters) - Mining giant Rio Tinto (RIO.L) is hiving off assets to pay down $40 billion in debt after BHP Billiton withdrew a $66 billion bid, but in these turbulent times, who's buying?

Bankers and analysts say the world's largest miner BHP (BHP.AX)(BLT.L), Brazil's Vale (VALE5.SA)RIO.N, Switzerland's Xstrata Plc (XTA.L) and China's aluminum giant Chinalco, parent of Chalco (2600.HK) (601600.SS), are all eyeing Rio's diverse collection of assets.

Most have the cash to pounce on any near-term opportunities.

"The two with the most cash, BHP and Vale, they're definitely looking at the situation," one Hong Kong-based resources banker at a Wall Street firm told Reuters.

"Xstrata is still highly leveraged. Its stock has taken a beating -- it'd be interested, but has less ability to do a big deal," the banker said.

Neil Goodwill, analyst at Goldman Sachs JBWere, reckons the premise behind a BHP/Rio deal highlighted the strategic benefit of combining the two firms' iron ore assets in Australia's Pilbara region, and Rio should look to capture those benefits.

"For BHP, operating the assets, we believe, would be a must; for Rio, extracting cash for a 50/50 joint venture may ease its current debt position," Goodwill wrote in a report.

"We believe this deal could add significant value for both shareholders and solve some of Rio's pressing debt issues."

Rio (RIO.AX) is lumbering under the weight of its debt load, brought on by its $38 billion buy of aluminum producer Alcan last year. It has already cut its forecast iron ore production estimates for 2008 and 2009 to around 175 million tonnes and 180 million, respectively.

Rio is now axing 14,000 jobs, cutting capex by more than half, and hiving off prized assets to give investors confidence in its balance sheet as a stand-alone entity.

But who will buy what remains unclear.

There is persistent talk in the market that BHP wants Rio's 30 percent stake in Escondida, the world's biggest copper mine, for $4-$6 billion -- a prized asset that was one of the reasons BHP bid for Rio in the first place. BHP already operates the mine.

"Clearly, Rio is in a bit of strife and selling Escondida would get a decent price from BHP," said ANZ senior commodities analyst Mark Pervan.

And analysts say Rio's mineral business that produces salt, talc and borates, could fetch $1 billion.

French industrial minerals group Imerys (IMTP.PA), Canada's Teck Cominco (TCKb.TO) and buyout firms such as First Reserve and Apollo Global Management are reported to be interested, but no deal has emerged. Private equity players like Apollo and Bain Capital have also been mentioned as potential suitors for Rio's $5 billion packaging business.