A $US3 billion to $US4 billion bid for Rio Tinto’s stake in the Grasberg copper and gold mine would accelerate the miner’s likely capital returns and overall business simplification.
That’s the view of Macquarie analysts on Tuesday morning, following comments from an Indonesian minister that a deal was on track to be completed as early as this week.
“Given RIO’s low debt levels, we would expect proceeds from the Grasberg sale to boost ongoing capital management programs,” Macquarie analysts said in a note to clients.
“RIO’s recent commentary has consistently highlighted that Grasberg is a Tier-1 asset but not necessarily a Tier-1 business, given the associated regulatory and ESG risks.
“The reported potential sale price range is well ahead of our current US$2.6bn valuation for the project and the book value for RIO’s share at the end of CY17 of ~US$1.1bn.”
Rio and its Grasberg partner Freeport McMoRan have been negotiating with Indonesian state-owned company Inalum over a way to give the latter control of Grasberg’s complicated ownership structure.
Rio currently has rights to 40 per cent of copper produced by the mine above a certain production threshold, and 40 per cent of all copper produced at the mine after 2023.
UBS analysts told clients last week that a $US3.5 billion exit would be a “good outcome” for Rio.