Clearly 2008 has been a humdinger of a year for virtually all market sectors. But you'd be hard-pressed to find a group whose fortunes have risen and fallen as dramatically as the mining and metals companies.
From giant steelmaker ArcelorMittal (NYSE:MT) to Brazil's big mining company Vale (NYSE:RIO) and on to aluminum's Freeport-McMoRan (NYSE:FCX), it's nigh impossible to find a name in the group that's maintained any sort of share or product price consistency throughout the year. However, no member of the group has had a more extreme ride than London-based mining giant Rio Tinto (NYSE:RTP).
Last year the company outbid aluminum producer Alcoa (NYSE:AA) to acquire Canadian rival Alcan. And for about 18 months it steadfastly evaded its own purchase by Australia's minerals behemoth BHP Billiton (NYSE:BHP), fending off what could have been the mother of all mining mergers.
But this year has seen its minerals prices -- including those for iron ore -- shoot up like so many bottle rockets, only to tumble to earth just as suddenly. The amazing slide caused BHP late last month to retract its offer of 3.4 of its shares for each Rio Tinto share. It's now clear that Rio Tinto's lengthy and determined stiff-arming of BHP cost it and its shareholders a pretty penny -- or shilling: Late last week its shares -- which have fallen nearly 60% on the domestic markets since BHP pulled its offer -- briefly traded below BHP's on the London Stock Exchange.
Why has the company plunged so far and so fast? The response to that logical query is that, at the time it acquired Alcan, Rio Tinto borrowed $40 billion from 27 banks, an easy and painless accomplishment in that pre-credit crunch time. But now, as you know, things have changed, and there's growing concern about the company's ability to repay the $8.9 billion that'll come due next October and the $10 billion repayment scheduled for the following year.
Rio Tinto apparently is in talks with its banks about refinancing its debt and appears to be rethinking a host of capital projects. But even if the refinancing doesn't turn out to be a Herculean task, it'll be an expensive one for the company. Nevertheless, I can sense some Fools' wheels turning about salting away a few of Rio Tinto's now dirt-cheap shares.
Don't! This is a crazy world we currently inhabit, and now isn't the time for you to attempt excessive heavy lifting with your portfolio.
Rio Tinto retains a four-star rating among Motley Fool CAPS players. Would you give the company a thumbs up?
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