Rio Tinto (LON:RIO), the world’s second largest mining company, is ready to restart looking for deals, but only if it can secure the right asset at the correct valuation and win investor support, analysts and banking sources say.
According to Bloomberg, Morgan Stanley and other analysts met this week with Rio’s chief financial officer Chris Lynch. And got the impression that the miner could be soon looking for tier-one assets whose valuations are being pushed lower.
“If they can buy tier-one assets at valuations that are closer to the bottom of the cycle, then that’s not a stupid thing to do,” Jason Beddow, chief executive officer of Argo Investments, told Bloomberg. His company manages close to $4 billion in Australia and holds Rio shares.
If Rio buys any assets this year, it would be its first acquisition in about three years. But chief executive, Sam Walsh, has repeatedly said his company is neither interested in acquisitions nor has any short term plans of merging with anyone (read Glencore).
At a February event in London, Walsh had not problems vocalizing his thoughts and expressed that a merger with Glencore was simple “not going to happen,” indicating he thought Ivan Glasenberg’s company couldn’t pay a high-enough price.
Since then, however, things have changed, and quite a bit. Bloomberg reports:
Tumbling oil prices saw Royal Dutch Shell Plc. bid $70 billion for BG Group Plc. Pacific Investment Management Co. last month said commodity prices are trading close to the bottom.
Teck Resources Ltd., the second-largest exporter of metallurgical coal, expects growing competition for mining deals with the sector “closer to the bottom of the cycle than the top,” CEO Don Lindsay said on an April 22 earnings call.
Mine valuations have fallen as much as 70%, according to gold producer Evolution Mining Ltd.
A report released in April showed that global mining deals have been on their way up since late 2014, driven by ongoing commodity price rout that has forced miners to slash capital spending and cut costs.