China, PE Close In On Rio Tinto Units

HONG KONG (Reuters) – A Chinese company and private equity firms are among the groups expected to submit final bids for Rio Tinto’s borates and talc units, according to sources close to the matter, in a deal potentially worth over $1 billion.

Final offers for Rio Tinto’s (RIO.AX) (RIO.L) borates and talc units, which the mining giant is selling to help pay down nearly $40 billion in debt, are due within a week, according to the sources.

The world’s No.2 miner — which is axing 14,000 jobs and cutting capital spending by more than half — is seeking buyers for a host of core and non-core assets after bigger rival BHP Billiton (BHP.AX) (BLT.L) ended its $66 billion hostile takeover bid in November.

“What I’ve heard is that final bids are imminent, perhaps by the end of next week,” said one source familiar with the process.

The sources did not disclose the names of the Chinese bidder or the private equity parties. The sources also did not want to be named because the auction is at a sensitive stage.

A sale of the units is expected by analysts to fetch around $1.2 billion — with borates the far more valuable unit at around $1 billion, analysts say.

One analyst told Reuters in November that French industrial minerals group Imerys (IMTP.PA) could bid for the units. British newspaper The Independent reported in November that Canada’s Teck Cominco (TCKb.TO) and buyout firms First Reserve, Apollo Global Management, and CVC Capital are among other potential bidders.

While a successful auction would be a boost to Rio, it would put just a small dent its massive debt load. Investment bank Dresdner Kleinwort is running the sale process.

As in any auction, bidders can emerge, team up, or drop out.

Analysts at several banks say aluminium giant Chinalco is likely to be among Chinese bidders for Rio’s assets. The company, the parent of Chalco (601600.SS) (2600.HK), already owns part of Rio and has said it plans to lift its stake to 14.99 percent.

“The Chinese have been pretty active through the upcycle and were buying at the top of the market over the past year or so, and this is a huge opportunity for acquisitions at much more attractive asset valuations,” said Andrew Driscoll, Head of Resources Research at CLSA, adding that Chinalco is primarily focused on base metals.

“I think Chinalco is certainly going to be a company to watch over the next couple of years, and it will be on an aggressive acquisition push,” he added.

A New York-based banker told Reuters on Thursday that up to three private equity firms were bidding, but declined to identify them due to the sensitive nature of the deal.

Borates are used in fibreglass, detergents and ceramics, and talc is used in paper, paints, plastics, ceramics, rubber, personal care and roofing.

U.S.-based Rio Tinto Borax supplies nearly half the world’s refined borates, and sister company Luzenac produces more than a quarter of the world’s talc. Both are part of Rio Tinto Minerals.

By Joseph Chaney and Michael Flaherty
(Additional reporting by Michael Erman in NEW YORK and Quentin Webb in LONDON; Editing by Lincoln Feast)