Who Wants to Buy Rio Tinto's Mines?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Iron ore miner Rio Tinto (NYSE: RIO  ) is finding out how difficult it can be to negotiate from a position of weakness. As it tries to unload assets to shore up its financial position, buyers are trying to take advantage of its diminished position by low-balling offers. The miner's not so desperate yet that it will take any old offer that comes along, but it shows that when you're having a garage sale of anything that's not nailed down during a difficult industry period, you're not going to command top dollar.

Case in point is the failure thus far of Rio Tinto to find a buyer for its 59% stake in its Canadian iron ore assets. The operation is Canada's largest producer of iron ore, and despite having three bidders for the assets, all the offers made were apparently substantially below the already fire-sale price the miner was asking.

Not that you can blame them. There are a host of iron ore mines on the market for sale, a bunch of which aren't even Rio Tinto's. BHP Billiton (NYSE: BHP  ) , for example, is selling its Jimblebar mine in Australia to two Japanese companies, Brazil's MMX is mulling over whether to sell its project under construction in Rio de Janeiro state, Fortescue will be selling off assets in the September quarter after sharply reducing production targets, and the U.K.'s Stemcor is selling off Indian assets. So the market is flush with potential projects to buy.

Couple that with questions over how much demand there will be for steel with China's economy slowing -- albeit at a slower rate than was expected -- and buyers are right to be cautious about paying too much for something that could be worth a lot less tomorrow.

China is looking for its GDP to grow no less than 7.5% this year, which other industrialized nations would give their eye teeth for, but it represents a lower output than the 8% analysts were forecasting earlier this year and is well below the 10% or better growth it achieved over the past few years.

So where steelmakers such as ArcelorMittal (NYSE: MT  ) may have been interested in some of Rio's assets, figuring out how to put them to productive use as the market for steel wanes would be no small hurdle to surmount. It also sold its own Canadian iron ore assets earlier this year for $1.1 billion.

Similarly Teck Resources (NYSE: TCK  ) was thought to be a potential buyer as it looked to gain leverage with steelmakers, but the miner scoffed at the suggestion, calling its involvement in any big asset purchases to be "grossly overblown."

In the end, Rio TInto had whittled the list down to three private-equity firms, and they were just eliminated because their bids were too low. That's another blow to the miner, which also just gave up on trying to sell its Pacific Aluminum asset and failed to find a buyer for its diamond mines earlier this summer.

I wouldn't count Rio Tinto out just yet, however. It has managed to sell sell almost $2 billion worth of non-core business so far this year, and though its shares are still 20% below their recent highs, they've also bounced some 20% off their recent lows, putting the stock just about where it was a year ago. That might not sound so encouraging, but with miners such as Vale down 18% and Teck down 7%, investors may feel somewhat encouraged by Rio's recovery.

Minerals and precious metals may have lost their luster at the moment, but the big declines they've suffered are only setting the stage for the next bull run. The Motley Fool's new free report "The Best Way to Play Gold Right Now" dissects the recent volatility and provides a guide for gold investing. Click here to read the full report today!

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2589709, ~/Articles/ArticleHandler.aspx, 9/28/2016 6:53:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 4:01 PM
RIO $32.23 Up +0.06 +0.19%
Rio Tinto CAPS Rating: ***
BHP $32.62 Down -0.01 -0.03%
BHP Billiton CAPS Rating: ***
MT $6.03 Down -0.03 -0.50%
ArcelorMittal CAPS Rating: ***
TCK $18.31 Down -0.18 -0.97%
Teck Resources CAPS Rating: ***