MONTREAL — Global mining giant Rio Tinto Ltd. plans to focus on its upstream mining expertise after announcing its desire to sell Alcan's engineered products division to bolster its position in the face of a US$150 billion hostile takeover offer from rival BHP Billiton Ltd.
The London and Australian-based miner said Monday it also expects to realize $940 million in annual savings by the end of 2009 from its takeover of Montreal-based Alcan. That's more than a third higher than the initial $600 million after-tax estimate.
Rio Tinto plans to sell half of the $30 billion of the assets identified from a review in the wake of its $38 billion offer in July to purchase Alcan.
The total estimated value of assets to be disposed of has increased to about $15 billion from $10 billion, when Alcan's packaging business was identified.
Alcan's European operations will be most affected by the decision to sell the engineered products division, which includes the aerospace operations based in France.
A cable plant near Shawinigan, Quebec, and a very small bumper plant in the province's Saguenay region are included in the assets being sold.
''But it's a very small footprint in Canada,'' Rio Tinto Alcan CEO Dick Evans said in an interview with The Canadian Press.
Analyst Chris Lancaster of RBC Capital Markets valued the engineered products division at $4.01 billion and packaging at $3.7 billion.
Evans said the company plans to sell the engineered products division, like the packaging unit, as a whole because it is more valuable if it isn't chopped up.
The engineered products group is a partner in the development of lighter and more fuel-efficient automobiles and airplanes.
With 15,000 employees at 120 facilities in 32 countries and regions, the division has annual sales of $6 billion.
Evan denied that BHP Billiton's takeover bid influenced the decision about which assets would be sold.
''We accelerated our decision making process, but I don't think it would have changed the decision because the drivers behind it are the fact that this business is worth more in somebody else's hands than we think it is in our portfolio.''
Rio Tinto said the sale of the packaging business is ''well advanced'' and has attracted interest from a number of ''serious strategic buyers.''
Company CEO Tom Albanese said Rio Tinto has decided for strategic reasons to focus on its upstream, or primary mining, operations.
''If you look at what we are good at, where our competencies are, the fact that the upstream assets tend to be more concentrated, that's what our investors look to when they buy a share of Rio Tinto,'' he said in an interview from London, where he told investors BHP's offer significantly undervalued his company.
Albanese painted a bullish outlook as he told analysts the standalone value Rio Tinto can create from its growth dwarfs the synergies claimed by its rival.
''While BHP may need Rio Tinto, we do not need BHP Billiton,'' he said.
RBC analyst Lancaster said Rio Tinto performance was convincing and throws the ball back into BHP's court.
''A cynic may also argue there is nothing like a takeover to 'incentivise' a target to bolster its defenses, by providing new and positive information,'' he wrote in a report.
''Rio Tinto has been its own worst enemy with its past minimalist disclosure. BHP's proposal has caused management to react accordingly.''
Rio said operational synergies are expected to increase to $560 million a year from the July estimate of $220 million.
The savings come from personnel reductions, capacity and throughput improvements, combining technology, larger procurement and enhanced logistics, said Evans.
''From a Canada perspective, Montreal will become one of Rio Tinto's global hubs which will be providing service to all of Canada and even other parts of America,'' he said.
''And therefore we do not see any problem in meeting Rio Tinto's commitments in terms of the Quebec agreement or the Investment Canada agreements.''
After touring the Saguenay region last month, Albanese said his assessment of its new Canadian assets grew stronger.
''It is very much a first-tier asset in my eye,'' Albanese said, adding Quebec's watershed feeding into a smelting complex is something unique that couldn't be replicated.
In addition to great opportunities in Quebec, the American chief executive added he's excited with the planned upgrade at the Kitimat smelter in British Columbia.
Rio and joint venture partner Harry Winston Diamond Corp. also announced plans to invest $563 million on the underground phase of its Diavik diamond mine in the Northwest Territories of Canada.