Recently, Rio Tinto plc (RIO) announced to have received a binding offer for its European specialty aluminas business from the U.S.-based private-investment firm H.I.G. Capital. The Anglo-Australian miner entered into exclusive discussion with H.I.G., wherein both the parties have agreed to respond to the binding offer following consultation with the relevant European works councils. The terms of the binding offer has not yet been disclosed.
Looking back, H.I.G seems to have experienced the potential of aluminum business with its prior investment in an aluminum extrusion business, called Signature Aluminum, based in Pennsylvania. Signature Aluminum is engaged in running business across eight facilities in the U.S. and Canada. Rio Tinto, on the other hand, suffered a setback in its aluminum business and was forced to book $8.9 billion impairment charge in 2011 to reflect a fall in the value of Rio Tinto Alcan, its struggling Aluminum division. However, Rio continues to follow its strategy of streamlining the aluminium group business through the divestment of non-core assets and this recent binding offer from H.I.G looks quite convincing to uphold such business strategy.
The specialty alumina, which is produced by refining bauxite, is essential for manufacturing ceramics, abrasives and glass. According to the International Aluminium Institute, this non-metallurgical alumina accounted for about 8% of total global alumina production in 2011, which comes to around 4.9 million metric tons.
Rio Tinto is the largest integrated supplier of non-metallurgical grade of aluminas. The company runs four production sites, namely Gardanne, La Bathie and Beyrede, all in southern France, and Teutschenthal in Germany, employing around 730 people.
Headquartered in London, UK, Rio Tinto plc is engaged in exploring, mining, and processing the earth’s mineral resources, producing a broad range of metals and minerals. Rio Tinto competes against global mining giants like BHP Billiton Ltd (BHP) and Vale S.A (VALE).
We currently have a Neutral recommendation on the stock. RIO has a Zacks #3 Rank, which implies a short-term (1-3 months) Hold rating.
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