Speculation that Rio Tinto could follow BHP Billiton and spin off its unwanted resource assets into a separate company failed to set the shares on fire yesterday as investors maintained a healthy scepticism for the moment.
According to US brokers Sanford C. Bernstein, Rio’s restructure announced on Tuesday has created a division that could be spun off, just as BHP created South 32 and then floated after the shares were distributed to shareholders.
In the revamp, Rio grouped together in a new energy and minerals segment containing coal and uranium mines, salt, borates and titanium-dioxide businesses, and Rio’s Iron Ore of Canada unit.
Rio’s shakeup of Rio follows the move by larger rival BHP Billiton last year to create South32 by hiving off manganese, coal, alumina and nickel assets it no longer needed and offering them to investors.
“This seems like a portfolio of unwanted assets that could be ready for a spinoff," Paul Gait, a London-based analyst at Bernstein, said in a client note. "This division looks a lot like the South32 assets previously in BHP’s portfolio."
South32 shares are listed in Sydney, London and Johannesburg after being distributed to BHP investors and listed in May of last year.
Bloomberg reported that Bernstein estimated that this fifth leg of Rio could earn $US1.2 billion before interest, tax, depreciation and amortisation next year. At eight times earnings, the unit would be valued at $US9.3 billion ($A12.4 billion).
Long time Rio executive, Alan Davies is staying with Rio and will head up the 5th leg.
South 32 has a current market value of $A9.1 billion. Rio shares rose 0.8% to $44.58 after hitting a day’s high of $45.07.
