Rio may decide to keep its Iron Ore Co. stake after being disappointed with the bids it’s received so far, said the person, who asked not to be identified because the talks are private. While London-based Rio has considered selling the unit’s mining and infrastructure assets separately, it decided against the plan, the person said. Spokesmen for Teck and Rio and a spokeswoman for Iron Ore Co. declined to comment.
Buying Canada’s largest iron-ore producer would enable Vancouver-based Teck to diversify its production, which mostly comprises coal, copper and zinc. Rio’s 59 per cent stake in Iron Ore Co. may fetch as much as $3.5 billion, Crédit Suisse Group AG analysts said in a note in June.
An acquisition that size would be Teck’s largest since its C$10.4 billion ($10.1 billion) purchase of Fording Canadian Coal Trust in 2008, a deal completed just as commodity prices were beginning to plunge during the financial crisis. In 2009, Teck’s credit rating was cut to junk by Standard & Poor’s and the company sold a 17 per cent stake to China Investment Corp.
Teck now has a “very strong” balance sheet and would like to keep it that way, Chief Executive Officer Don Lindsay said on a July 25 earnings conference call with analysts.
“We do look at opportunities in the market,” he said. If Teck found a potential acquisition,”we’d look at how to finance it at that stage, but always with the key criteria that we are staying investment-grade.”
Apollo Interest
Rio hired Crédit Suisse and Canadian Imperial Bank of Commerce for the Iron Ore Co. sale, a person familiar with the matter said in March. Private-equity firm Apollo Global Management LLC made an offer for Rio’s stake, a person familiar with the situation said in June. Swiss commodity trader Glencore Xstrata Plc is studying an offer, two people familiar with the situation said last month.
Canada Pension Plan Investment Board and Montreal-based pension-fund manager Caisse de Depot et Placement du Quebec are seeking partners for possible separate bids and Blackstone Group LP has also expressed interest, the Wall Street Journal reported July 5.
Big mining companies are selling assets worldwide as the slowing Chinese economy depresses prices for metals. In addition to Rio, Anglo American Plc is looking for partners in its Minas Rio project in Brazil, while BHP Billiton Ltd. tries to find a buyer for mines in West Africa. Rio said yesterday it agreed to sell its Northparkes copper and gold mine in Australia to China Molybdenum Co. for $820 million.
Iron Ore Co.’s operations are located in Labrador City in Newfoundland and Labrador, Canada’s easternmost province. It owns a 418-kilometre (260-mile) railway and port on the Gulf of St. Lawrence. Labrador Iron Ore Royalty Corp. owns a 15 per cent stake and Mitsubishi Corp. has a 26 per cent interest.
—With assistance from Andy Hoffman in Geneva, Katia Dmitrieva in Toronto, Christopher Donville in Vancouver and Aaron Kirchfeld and Jesse Riseborough in London.
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