Alcoa exits Rio Tinto deal with Chinalco - To book US$120m loss
Published: Friday | February 13, 2009
The world headquarters of Alcoa Inc is seen along the north shore of the Allegheny River in Pittsburgh, in this May 7, 2007 file photo. - AP
Alcoa has pulled out of a deal with Chinalco a year after the two partnered on a special vehicle called 'Shining Prospect', to acquire shares in Australia's Rio Tinto.
Alcoa and Chinalco made separate announcements within days of Rio Tinto confirming talks with Chinalco on a new deal with the Chinese mining company.
Reports were that Chinalco and Rio had reached a US$19-billion deal, potentially doubling Chinalco's ownership in Rio to 18 per cent.
Chinalco said in its statement it had agreed to buy out Alcoa, in the original partnership to acquire nine per cent equity in Rio in February 2008 for US$14 billion.
The advisory also came two days behind the downgrade of Alcoa's credit rating to just above junk status on what analysts said were weak fundamentals.
Standard and Poor's cut the company's rating two notches to 'BBB-', with a negative outlook.
Alcoa said it would receive US$1.021 billion in cash payable in three instalments over a six-month period ending July 31, 2009 by exiting Shining Prospect - projecting the funds would improve its cash position and slim its debt to capital ratio.
But the American mining company also said it expects to book a US$120-million loss on the investment in the first quarter of 2009 - having contributed US$1.2 billion to the February 2008 deal.
"This transaction, combined with our intention to explore opportunities to expand our commercial relationship, strengthens Alcoa's ability to weather the economic downturn," said Klaus Kleinfeld, Alcoa president and CEO. in a statement.
"When the global economy recovers, the pent-up consumer and industrial demand will create a broad array of opportunities in both developed and developing regions for Chinalco and Alcoa."
Knocked from top slot
Alcoa, a year ago, was knocked from the top slot as the world's largest mining company by a Russian-Swiss alliance that created UC Rusal.
Rusal has since hit turbulence because of the steep drop in the world aluminium market, forcing the company to shutter some of its plants - it says temporarily - including one in Jamaica.
Later Thursday, Alcoa and Chinalco jointly announced that they intend to expand their commercial relationship by identifying strategic ventures to complement their bauxite, alumina, aluminium and fabricated products businesses.