Global Miners Stage ‘Retreat to the Core’

Global mining groups, such as BHP Billiton, Vale and Anglo American, are pruning their expansive portfolios, as calls from shareholders for greater focus and spending discipline prompt them to shed non-core assets.

Open cast mining for iron ore.
Tim Graham | The Image Bank | Getty Images
Open cast mining for iron ore.

“We are definitely seeing a retreat to the core,” said one industry expert, pointing out that companies are considering selling second or third-tier assets in a bid to free-up capital and reduce demands on management time.

BHP has appointed advisers to explore a sale of its aluminum assets in Brazil, according to people familiar with the matter, where the mining group has stakes in two joint ventures, the Mineração Rio do Norte bauxite operations and the Alumar smelter.

The miner, which is reassessing its $20bn a year spending plans, has been reviewing its operations in challenging sectors such as aluminum and manganese, a process that could result in further sales.

However, the environment for selling assets was tough, said industry advisers, with few willing buyers and difficulties securing financing. “[Miners] have realized that having lower quality assets in their portfolio doesn’t make sense. But is now the time to be selling them?” said one adviser. “It is difficult to get good prices right now.”

Anglo is also moving closer to a sale of its Amapa iron ore mine in Brazil, according to people familiar with the matter, but has not yet made a final decision to proceed.

The group acquired Amapa with Minas-Rio, a greenfield development project, in 2008. Analysts at UBS recently argued that the mine was less strategically important to Anglo than Minas-Rio, which has experienced substantial delays and cost overruns, because of its limited size.

Vale, the Brazilian iron ore company, this week sold its European manganese operations to Glencore for $160m, a deal that analysts at Liberum said fitted the trader’s “opportunistic and piecemeal” deals strategy.

Marius Kloppers, chief executive of BHP, said in May the miner would “optimize and simplify” its portfolio, with the industry facing choices given that it now had “more projects than cash flows”.

Last November, BHP said it would sell its Ekati diamond mine in Canada and in February agreed to offload its stake in Richards Bay Minerals, a mineral sands operation, to Rio Tinto.

Xstrata last month said it would gauge interest in its Frieda River copper project in Papua New Guinea and industry advisers expect more sales from the joint portfolio, should the miner’s $60bn merger with Glencore go ahead.

Rio Tinto, which this year said it could sell or float its diamond operations and is selling aluminum assets, in 2007 and 2008 explored various sales, including its borates unit and Northparkes copper-gold mine, before deciding to retain some of the businesses.