Rio sells Northparkes copper mine for US$820M

VANCOUVER — Rio Tinto (NYSE: RIO; LSE: RIO) has taken another step in its effort to sell non-core assets and reduce its debt with a deal to sell its 80% stake in the Northparkes copper mine in Australia to China Molybdenum (US-OTC: CMCLF) for US$820 million.

“Northparkes is a successful business, but is not of sufficient size to be a good fit with our strategy,” says Rio Tinto CFO Chris Lynch. “Any decision to sell is driven by our focus on delivering the best value for our shareholders.”

The deal is subject to 20% owners Sumitomo Metal Mining and Sumitomo Corp. Mineral Resources waiving their right to match the offer. The two are subsidiaries of Sumitomo, which has declined to comment on the situation. 

Analysts said China Molybdenum was a surprise winner among those bidding for Northparkes; Australian copper miner OZ Minerals had been pegged the most likely to buy Rio’s stake in the mine. The Chinese molybdenum and tungsten producer went public last year and bears a market capitalization of $5 billion.

Rio is working to reduce costs and shed non-core assets after its debt load swelled to almost US$19 billion last year, threatening its single-A credit rating. Selling assets like Northparkes should allow the company to focus on core operations like its iron ore mines in Western Australia and the newly operational Oyu Tolgoi copper-gold mine in Mongolia. 

“The agreed sale of Northparkes follows our recently completed divestment of the Eagle nickel project in the U.S., while the Palabora sale is now unconditional and expected to close on 31 July,” Lynch said. 

Rio sold the Eagle mine in Michigan to Lundin Mining (TSX: LUN) for US$315 million, in a deal that closed July 17. The Palabora deal that Lynch mentions will see Rio sell its 57.7% stake in a copper mine, smelter and refinery complex in South Africa operated by Palabora Mining (US-OTC: PBOAF) to a consortium of South African and Chinese buyers for US$373 million.

The Northparkes deal carries a better price tag than many observers expected. That bodes well for other mining majors looking to sell copper assets such as Glencore Xstrata, which is seeking a buyer for its large Las Bambas project in Peru. 

Shedding Northparkes shortens Rio’s list of assets for sale, but the list is still long. It includes aluminum operations in Australia and New Zealand, stakes in coal mines in Australia and iron ore mines in Canada. 

Not long ago the mining major took its diamond business off the block after getting little interest in the assets. 

Rio’s share price was unchanged on the news, remaining at US$45.40. Since early July Rio shares have rallied notably, rising 15% above a 52-week low of US$39.14. At the start of the year Rio shares were worth US$60. The company has 1.4 billion shares outstanding.