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WIKI ANALYSIS
Rio Tinto (RTP) is the third-largest Mining company in the world [1]. A diversified multi-national group which specializes in natural resources and with operations in all six inhabited continents in the world but mainly concentrated in Australia and Canada, [2] Rio Tinto (RTP) is dual-listed with the Australian Stock Exchange and the London Stock Exchange and head-quartered in London. Its operations mainly focus on six primary product and business support groups [3]
After the first quarter of 2009, Rio Tinto (RTP) had a market capitalization of about $34 billion, making it the fourth-largest publicly listed mining company in the world [4]. Rio Tinto was the subject of a failed high profile merger bid [5] from rival BHP Billiton (BHP) between November 2007 and November 2008, which would have culminated in the "second-largest takeover ever" [6] worth $350bn (£168bn) [7]. Results at the end of 2008 showed a rise in shares by more than 30% and a $30 billion market value increase (up 20.6% to $145 billion) since the start of BHP Billiton (BHP)'s quest.[8]
In February 2009, Aluminum Corporation of China (ACH) (which is controlled by the Chinese government), cooperated with Alcoa (AA) to buy a $14 billion stake[9] in Rio Tinto (a 9% stake in the UK-listed arm of Rio Tinto which surmounts to 12% of the overall company [10] that is expected to generate $1.1 billion in savings from the end of 2009 [11] and make the group the global leader in aluminium. However, Rio Tinto (RTP) has $39bn of debt to service, most of its associated with the purchase of Canadian group ALCAN (AL) [12] at the height of the commodities boom which significantly burdened the company
Corporate Overview
Rio Tinto is involved in exploration/finding, mining and processing of mineral resources in South America, Asia / Australasia, Europe and Southern Africa [13]. Its six primary business groups are:
- The Copper group
- The Iron Ore group
- The Energy group
- The Aluminuim group
- The Industrial Minerals group
- The Diamonds, Gold, and Other group
Business and Financial Metrics
Rio Tinto has given the best perfomance in the sector, with a 75% increase in net earnings to $3.8 billion (China accounting for 30% of the group's revenues) [14]. The first half of 2008 represented an upward surge in the group's perfomance and earnings
| USD (millions) | ||||
| Year | 2006 | 2007 | 2008 | 2007 vs 2008 (%) |
| Consolidated revenue | 22,465 | 29,700 | 54,264 | |
| Income (Operating profit) | 8,974 | 8,571 | 10,194 | |
| Net earnings (billions) | 3,253 | 6,914 | 113% |
Rio's profit more than doubled to $6.91 billion, or $5.39 a share, from $3.25 billion, or $2.51 cents a share, in the first half of 2008. Also experiencing more than a doubling was the revenue -- up by 124% to $27.2 billion from $12.1 billion [15].
Despite a sharp decline in industrial output during the second half of 2008, with many metals markets have entering 2009 with prices at their lowest level in several years -- Rio Tinto's first-half 2008 results showed unprecedented levels, Some of the highlights were: [16]
- Record underlying earnings* of $5,474 million, 55 per cent above first half 2007
- Record net earnings* of $6,914 million, 113 per cent above first half 2007
- Cash flow from operations up 54 per cent to a record of $8,860 million - a run rate of approximately $1.5 billion of cash flow per month.
- Half year production records achieved in iron ore, bauxite, alumina, aluminium, borates, titanium dioxide and thermal coal
- Interim dividend increased 31 per cent to 68 US cents
USD (millions) Year 2006 2007 2008 2007 vs 2008 (%) Consolidated revenue 22,465 29,700 54,264 Income (Operating profit) 8,974 8,571 10,194 Net earnings (billions) 3,253 6,914 113%
BHP Billiton (BHP) offer for Rio Tinto
Rio Tinto's rival, BHP Billiton (BHP) , the biggest mining company in the world, tabled a merger bid[17] for Rio Tinto on 8 November 2007 - sparking what would be one of the highly publicized takeover attempts in the history of the sector.
BHP Billiton (BHP) asserted that Rio would contribute approximately 36% of profit and with 64% coming off BHP Billiton (BHP) 's block. Under the proposed deal, he says Rio investors would get a larger payout relative to what the company produces in profits. Investors were promised a 44% return, that is the swap of 3.4 BHP shares for each Rio share [18] BHP Billiton (BHP) also argued that a combined group would cut inefficiencies[19] - while its own profitable petroleum business would act as a counter to falling commodity prices because of its independence on from other metals
The Rio Tinto group rejected BHP Billiton (BHP) 's bid to create a mining giant worth 350bn (£168bn)[20] because their rival's offer because it "undervalued" them. A subsequent hostile takeover attempt by BHP Billiton (BHP), which valued Rio Tinto (RTP) at $147 billion, met the same fate. Rio asserted that the offer was not in the best interest of shareholders, and their "world class portfolio of assets put it in a position to succeed in the mining cycles. They also claimed that doubling net profits for the first half of 2008 were evidence that they were worth more than what BHP Billiton (BHP) offered[21]
The unsolicitated takeover offer however resulted in a more positive perfomance by the Rio Tinto group. Apart from the market value increase, there was a 11% rise in net income for the second half of 2008 as rising costs offset higher prices for key minerals
Mining giant Rio Tinto reported an 11% rise in net income for the second half of last year as rising costs offset higher prices for minerals like iron ore and copper -- two dynamics behind a roughly $137.7 billion unsolicited takeover offer from rival BHP Billiton[22]
BHP Billiton (BHP)'s spirited pursuit officially ended on November 25, 2008. Market instability because of the 2008 Financial Crisis and complications arising from a purchase of 12% of Rio Tinto (RTP) stake by Chinese government controlled Aluminum Corporation of China (ACH) were key determinants of this decision.
Rio Tinto deal with Aluminum Corporation of China (ACH)
China's insatiable desire for natural resources [23], spurred by an approximately 8% annual economic growth rate[24], was at show with government-controlled Aluminum Corporation of China (ACH) combining with US company Alcoa (AA) to buy a 12%, $19.5 billion dollar[25] overall stake in Rio Tinto group on February 1, 2009. [26]
Chinalco ownership of the companyis set to jump to approximately 18.5% [27] The deal is still pending approval from regulators in the United States, China, and Australia, and has not yet been approved by shareholders, whose power may pose a threat to the success of the deal
Rio Tinto aqcuisition of 80% ALCAN (AL)
In November 2007, Rio Tinto successfully completed an 80% takeover of Canada's ALCAN (AL)[28]
The most current consequence of the deal has been a $39 billion debt[29] for Rio Tinto and lower estimates for profits by some analysts [30]. However, the company expects greater savings and greater spread in the industry from the deal on the long run
Trend and Forces
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