Few firms big enough to consider Tiwai

Aluminium from Tiwai Point in Southland is one of the countries biggest export earners. Photo / Dean Purcell

The future sale of Tiwai Point aluminium smelter near Bluff - one of seven separate assets being bundled into a new company by mining giant Rio Tinto - could become the focus of Chinese investment or stock-exchange listing.

The Tiwai smelter is one of the country's largest single exporters by value and has provided hundreds of jobs in Southland during the past 40 years, manufacturing some of the highest-purity aluminium available in the world.

Bids worth billions of dollars will be sought by Rio Tinto for the assets of the new company, Pacific Aluminium, which will encompass, with Tiwai Point, the Gove bauxite mine and alumina refinery; Boyne Smelters and its associated Gladstone Power Station; the Tomago smelter; and the Bell Bay smelter, all in Australia.

Research by Craigs Investment Partners indicates Tiwai has a value of around $1.4 billion while all seven assets under the new Pacific Aluminium umbrella are valued at almost US$7 billion ($8.7 billion).

Other Rio aluminium assets for sale separately - refineries in France and Germany and two smelters in Britain and the United States - are collectively valued at US$1.44 billion.

The sales are expected to improve the performance of Rio's aluminium operation, which has struggled since Rio made the ill-fated Alcan acquisition for US$38 billion in 2007, the Australian reported last week.

Craigs broker Peter McIntyre said, because of the size and scale of each individual operation, just a few companies would have the ability to bid.

Of the top 10 aluminium producers, bidders could include Alcoa in the United States, Alumina in Australia, Chinese state-owned Chalco or mining giant BHP Billiton.

Alcoa and Alumina also have respectively a 60 per cent and 40 per cent share in joint-venture company Alcoa World Alumina and Chemicals, the world's largest aluminium business.

A foreign purchase of Rio's majority 79 per cent stake would require Overseas Investment Office approval, he said.

McIntyre did not rule out the possibility of Tiwai Point being floated on the stock exchange, given the value of each asset had been identified individually, alongside after-tax profit forecasts for 2011.

Rio has only signalled the possibility of selling the assets in the Pacific Aluminium bundle, but several analysts believe Rio could also float a new company.

McIntyre said Rio's preference appeared to be a separate sale, but a floated entity could be more attractive to some buyers.

He said in recent years, China's automotive industry alone had seen annual growth rates in aluminium use increase by 7 per cent to 14 per cent.

"Aluminium is the second-largest metal market in the world.

"There's likely to be interest from China because of demand, but it's important to New Zealand that the buyer takes a long-term view of ownership," McIntyre said.

Rio Tinto released few details on the proposed sale of Pacific Aluminium, other than saying a strong balance sheet meant it could choose the timing and method for selling the assets, cautioning that may not proceed until the global economic climate improved.

McIntyre said while the assets being bundled together were profitable for Rio, there remained suggestions of high costs being attached to aluminium production in general. Rio Tinto had indicated it wanted to rationalise those divisions and instead concentrate its efforts on increasing cash flow, he said.

Last week Rio Tinto said it had committed an additional US$1.3 billion to the development of the huge Simandou iron-ore field project in Guinea.

"Rio Tinto is accelerating the development of the Simandou iron ore project in Guinea with the approval of a further US$211 million for continued studies and US$1.11 billion of funding for commitments for early works and procurement," the mining giant said, AFP reported.

The announcement brings the amount spent or committed to the project to US$3 billion, including US$700 million paid to the Guinean Government to secure the right to mine in two sections of the huge deposit.

The smelter

* Commissioned 1971.
* Valued at about $1.4 billion.
* Forecast after-tax profit 2011, $114 million.
* Rio Tinto Alcan - 79.36 per cent.
* Sumitomo Chemical Company - 20.64 per cent.
* Staff 750, plus associated contract workers.

- Otago Daily Times