Rio not fazed by Alcan debt

RIO Tinto boss Tom Albanese says the company's robust cash flows and ability to sell some business divisions will help it control the debt created by its $44 billion acquisition of Alcan. Rio, which has already flagged selling Alcan's packaging business, will consider divesting other units or assets of the enlarged company, Mr Albanese said. "We will be looking at the full range of Rio Tinto businesses in the new, larger Rio Tinto," he told ABC television. He did not specifiy which parts of the business could be sold but said there could be some that "don't quite fit" or would be more valuable in the hands of another company. "We might find buyers that are willing to pay more for them than we would necessarily see ascribed in our valuations or in our balance sheet," he said. Analysts have said that Rio could offload its aluminium smelters or Alcan's engineered products division. Mr Albanese yesterday defended Rio's bid price for Alcan, which some analysts consider expensive, saying the asset was "a first-class, tier-one asset". "There aren't many of them out in the mining sector and in the market right now," he said. Mr Albanese said Rio's gearing would rise to almost 60 per cent with the acquisition and it would take hard work to reduce the debt levels quickly. "We have a strong, robust set of cash flows within Rio Tinto, with cash generated from operations running at roughly $1 billion a month," he said. Moody's Investors Service, which estimates Rio may borrow as much as $46 billion to finance the bid, has placed the company's $1.5 billion of rated debt under review for a possible downgrade while it awaits developments on plans to reduce borrowings. Mr Albanese, 49, is making the mining industry's biggest acquisition, just two months after taking over at the world's third-largest mining company. The cash offer overwhelmed a hostile bid for Alcan by Alcoa and would create the world's largest aluminum producer. Rio plans to sell Alcan's packaging business to focus on the company's so-called upstream business of mining bauxite and alumina and smelting aluminum. Mr Albanese said demand for aluminum will continue to increase because demand from China and India will keep rising. "In a metal like aluminium, we have found that confluence point where we are able to provide an offer which fully met the needs of the Alcan shareholders," he said, "but was in the mantra of value that we have within Rio Tinto and very much consistent and complementary with our strategy." Mr Albanese added that an important aspect of the acquisition was Alcan's hydro-power contracts. "I think it was very important in our recognition that the access to long-term, low-cost, sustainable energy with essentially a zero-carbon footprint, very much puts the Alcan aluminium production in a competitive advantage," he said. That advantage was certain to grow in the future "when energy becomes more expensive, and potentially energy becomes carbon-constrained."