Rio Tinto and Anglo American Exit South African Copper Producer

on Dec 12, 2012
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**Rio and Anglo Sell Their Shares in SA Copper Producer**

Mining giants Rio Tinto (LON:RIO) and Anglo American (LON:AAL) have agreed to sell their combined 74.5 per cent stake in South African copper producer Palabora Mining (JNB:PAM) to a consortium of Chinese and local companies, The Financial Times reported on 11 December 2012.
British miner Rio Tinto has entered into a binding agreement to sell its 57.7 per cent interest in Palabora for $373 million (£231.5 million), while its peer Anglo American said it had agreed to sell its 16.8 per cent holding in the copper company for $103 million (£63.9 million). The purchaser is a consortium comprising of South African and Chinese state-owned entities led by the Industrial Development Corporation of South Africa Ltd. and China’s Hebei Iron & Steel Group (SHE:000709). Combined they will pay the amount of $476 million (£295 million) for the acquisition, valuing the South African copper miner at $610 million (£378.5 million).

The sale is subject to customary regulatory approvals in South Africa and China, which are expected to take four to six months. Following the news of the purchase agreement, Palabora Mining’s share price climbed over 10 per cent to R103.75 on the Johannesburg Stock Exchange where the company is listed.
**Palabora no Longer “Fit within Rio’s Portfolio”**

According to The Financial Times, citing Palabora’s website, the mining company produces about 80,000 tonnes of refined copper a year and has a refinery that produces continuous cast rod for the domestic market and cathodes for export. In the first half of the year, however, due to falling commodity prices and weak demand, Palabora’s net profit dropped over 50 per cent to R338 million (£24 million).

!m[Consortium of South African and Chinese Companies to Pay $476m for74.5% Stake in Palabora Mining ](/uploads/story/1020/thumbs/pic1_inline.png)Yet even before this drastic earnings decline, in September 2011, Rio Tinto and Anglo American had stated their intention to sell out of the business, saying that the South African copper producer did not have the scale to fit their investment strategies. The mining giants also stated that Palabora needed a new owner who can develop the existing copper and vermiculite operations and add value by processing the magnetite stockpile on site.

Following Rio’s sale of its stake, the company’s chief financial officer Guy Elliott said: “Palabora is a good business but is no longer a natural fit within Rio’s portfolio. Selling our stake reflects Rio’s policy of continually reviewing our portfolio to generate best value for shareholders.”
**Resource-Hungry China Sees “Significant Long-Term Investment Opportunities” in South Africa**
While Rio and Anglo move away from their copper business in South Africa, resource-hungry China continues to invest in the country’s mining assets. The world’s biggest consumer of base metals has added mining interests on the continent as it seeks resources to feed its expanding construction and automobile industries.
In a news report about Palabora’s sale, Bloomberg cited yesterday’s Hebei Steel chairman Wang Yifang’s statement to the Johannesburg Stock Exchange. Explaining the state-owned company’s motives for the purchase, Mr Wang said: “South Africa offers significant long-term investment opportunities.”

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