Rio Tinto faces a $10.8bn write-down over its Alcan acquisition

THE market is starting to factor in the prospect of Rio Tinto taking a $US7 billion ($A10.8 billion) write-down on its $US38 billion acquisition of Canadian aluminum producer Alcan when it releases its full-year results in February. After BHP Billiton last week admitted it would take a $US2.1 billion impairment on its $US2.8 billion Ravensthorpe nickel laterite operation, and a $US450 million hit on fees associated with its aborted bid for Rio, the focus has switched to whether the hefty price of the Alcan deal remains justified in accounting terms. Rio's chairman, Paul Skinner, last week said: "Every year we need to go through a review of our asset valuations at the end of the period. I wouldn't want to signal any intention to change the holding values of any assets in our portfolio today." As Merrill Lynch analyst Vicky Binns noted, the forward price of aluminium was stronger now than when Rio announced its Alcan purchase. But she said the downstream assets Rio has so far been unable to sell — packaging and engineered products — were at risk of a possible write-down. Credit Suisse yesterday valued each of those Alcan downstream divisions at $US2.5 billion, which is about half the value Rio was expected to achieve from the sales when it announced the Alcan deal. UBS and Credit Suisse said a $US7 billion write-down on the Alcan assets was a possibility. UBS analyst Glyn Lawcock noted that several of Rio's growth projects, including the $US1.8 billion expansion of its Yarwun refinery in Queensland, were at risk of being delayed. Rio has cancelled work on a housing village associated with the Yarwun expansion, raising fears the project will be placed on hold. But Rio spokeswoman Diane Collier said the expansion was continuing and the housing had been cancelled because 80 per cent of its workforce would come from the Gladstone area. Source：The Age