Miner Rio Tinto plc (RIO) has expressed its intention to divest the company’s 57.7% stake in South African copper mine, Palabora. Rio Tinto informed about the divestment issue to the board of Palabora Mining Company Limited. Thereafter, the commercial process for selling the effective shareholding has already been initiated by the mining giant.
The copper mine in South Africa, which is the principal asset of Palabora has a current mine life until early 2016. Studies showing possibility of potential life extension to 2030 are in progress currently. However, such extended life is anticipated to be unfit with Rio’s strategy due to limited opportunity and insufficient scale to significantly expand copper mining.
Alongside the existing copper and vermiculite operations, the value creation at Palabora also involves benefit from the magnetite stockpile in the region through on-site magnetite processing; thereby generating business in future. However, the magnetite processing activity is outside Rio Tinto's strategic operational focus and is anticipated to be unfit for them due to higher operational cost issues.
Rio Tinto announced that it will continue the Palabora operations efficiently and safely until the sales process completes. To ensure a smooth transition of the operation to a new owner, the company also decided to keep up with the ongoing process of engaging with employees, the South African Government and other stakeholders.
Meanwhile, Anglo American plc (AAL), another important stakeholder of the Palabora mine, also announced its intent of divesting 16.8% interest, citing the similar reasons as that of Rio Tinto.
Headquartered in London, UK, Rio Tinto is engaged in exploring, mining and processing of the earth's mineral resources, producing a broad range of metals and minerals. Rio Tinto competes against global mining giants like BHP Billiton Ltd. (BHP) and Vale S.A (VALE).
We currently have a Neutral recommendation on the stock. Rio Tinto has a Zacks #3 Rank, which implies a short-term (1-3 months) Hold rating.
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