Rio Tinto beats major retreat from aluminium business

MELBOURNE (Reuters) - Global miner Rio Tinto signaled a major retreat from its aluminum business on Monday, putting billions of dollars worth of assets up for sale across six countries, only four years after buying aluminum giant Alcan for $38 billion.

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 percent of group earnings.

Rio Tinto's shares jumped 2.5 percent to A$69.98 on the news, with fund managers applauding the move away from a poorly performing business with a relatively gloomy outlook.

"You'd have to think ... they're going to direct capital to where it works better for them," said Ric Ronge, portfolio manager at Pengana Capital, which owns Rio Tinto shares.

Rio Tinto has been in aluminum through many business cycles and ranks itself as the world's largest primary producer after its ill-timed Alcan deal in 2007, but this sudden retreat would leave it focused mainly on its more profitable Canadian assets.

'NO RUSH' TO SELL

Rio Tinto was careful not to appear overly keen to sell and it made clear that aluminum remained a core asset, saying global demand was relatively good and that it would consider making further investments in quality aluminum assets.

"We're going to be in no rush (to sell)," Rio Tinto Alcan Chief Executive Jacynthe Cote told reporters in a phone briefing after the announcement. She declined to say whether Rio Tinto was already in talks with potential buyers.

Aluminum prices have fallen more than 10 percent in the past three months and UBS, which rates aluminum one of its "least preferred" commodity investments, forecasts a further 8 percent price decline next year.

Rio Tinto said it would sell assets in Australia, New Zealand, France, Germany, the United States and the UK to focus on its hydro-powered plants in Canada and its Weipa bauxite mine in Australia.

Bauxite is used to make alumina which is in turn used to make aluminum, a light-weight and flexible metal used in everything from packaging and aircraft manufacturing to electrical cables and insulation.

Analysts said they had yet to work out how much Rio Tinto could fetch for the assets, and Cote declined to comment on the book value of the 13 assets.

The group said a new unit, Pacific Aluminum, would hold the six Australian and New Zealand units being put up for sale, including Australia's Gove bauxite mine and alumina refinery and Tomago smelter and its New Zealand smelters.

The plants in France, Germany, the United States and Britain that would be put up for sale would continue to be managed by Canada-based Rio Tinto Alcan.

In 2011, Rio Tinto forecasts its share of bauxite, alumina and aluminum production to be 35.8 million tonnes, 9.2 million tonnes and 3.9 million tonnes, respectively.

Its aluminum unit booked a 4 percent rise in earnings in the first half of 2011 to $379 million in sharp contrast to its iron ore business, where earnings soared 45 percent to nearly $6 billion on surging demand from Chinese steel-makers.

(Additional reporting by James Regan; Editing by Mark Bendeich)

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