Alcan Inc., a division of Rio Tinto (RTP), plans to infuse an additional $140 million, in addition to $347 million, to increase production of billets at its plant in Straumsvik, Iceland. The investment is expected to expand the plant’s capacity by 20%.
 
Alcan Inc. is Rio Tinto’s loss-making unit acquired in 2007. The company plans to divest the unit gradually. From the beginning of 2010 to date, Rio Tinto earned $3.6 billion through the divestment of Alcan Packaging Food Americas, Alcan Packaging global Pharmaceuticals, global Tobacco, Food Europe and Food Asia divisions, Vickery (Coal & Allied), Maules Creek (Coal & Allied), Alcan Beauty Packaging and Alcan Medical Flexibles.
 
Moreover, the company is awaiting Apollo Global Management, L.P. and Fonds Stratégique d’Investissement to purchase a 61% stake in Alcan Engineered Products. During February 2008, Rio Tinto had planned to make a divestiture of $10.3 billion. Since 2008, total divestment has exceeded $10 billion. More divestments are expected in the near term, which would help in increasing cash flows to the company.
 
Meanwhile, Rio Tinto has queued up a massive investment plan, including $230 million for further development of its Pilbara iron-ore mine, $800 million for completion of the underground block cave project at the Argyle Diamond Mine located in Australia, $1.6 billion investment for development of the Hope Downs 4 iron ore project, a $563 million MoU with Aluminum Corporation of China Limited – Chinalco (ACH) for the development and operation of the Simandou iron ore project in Guinea, etc.
 
Increased investment plans will decrease cash in hand, but investment in various growth projects will enable Rio Tinto to feed the long-term demand for its commodities. Thus, we reiterate our Outperform recommendation on Rio Tinto. The stock also maintains a Zacks #1 Rank (‘Strong Buy’).
 
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