Global miner Rio Tinto signalled a major retreat from its aluminium business on Monday, putting an estimated $8bn (£5bn) worth of assets up for sale across six countries, only four years after buying aluminium giant Alcan for $38bn.
Rio Tinto said it planned to sell 13 assets, including smelters and alumina refineries, in a move immediately interpreted as a way of diverting yet more resources to iron ore, which now accounts for nearly 80 per cent of group earnings.
"It's all about returns and these big miners, Rio included, are always re-evaluating their businesses. And iron ore is currently a real cash cow for Rio Tinto," said Gavin Wendt, senior mining analyst for Mine Life in Sydney.
The sale, which would leave Rio Tinto's remaining aluminium business focussed mainly on its more profitable Canadian operations, is designed to help the group more than double its aluminium earnings margins to 40 per cent by 2015.
"The only way they can achieve that is by getting rid of all these assets which can never be world class," said Peter Chilton, resources analyst at Constellation Capital Management.
Rio Tinto's shares jumped three per cent to a month high of A$70.29 on the news, with fund managers applauding the move away from a poorly performing business with a gloomy outlook compared with its iron ore unit, which enjoys a 70 percent profit margin.
Rio Tinto has been in aluminium since the 1950s and ranks itself as the world's largest primary producer after the ill-timed Alcan deal in 2007, but it could no longer ignore the business's big hunger for capital and relatively meagre returns.
City A.M. Reporter