Anglo American and Rio Tinto Plan to Sell Stake in South Africa's Palabora Mining Company

Rio Tinto and Anglo American announced their decision to sell their stake in South Africa's largest copper producer, Palabora Mining Company, citing a desire to focus on larger, longer-life assets. Analysts noted that this move is part of a broader trend of companies selling smaller assets in South Africa due to increasing costs and political risks. The sale of Palabora's 8% contribution to Rio Tinto's mined copper production in the first half of 2011 has sparked concerns about the future of the mining industry in South Africa, where miners face uncertain power supplies, rising labor and energy costs, and a strong rand.

Key Takeaways:

• Rio Tinto and Anglo American are planning to sell their stake in Palabora Mining Company due to a desire to focus on larger, longer-life assets.
• The sale of Palabora's 8% contribution to Rio Tinto's mined copper production in the first half of 2011 is a significant loss for the company.
• South Africa-based miners face uncertain power supplies, rising labor and energy costs, and a strong rand that eats into export profits.
• Analysts note that miners are facing increasing costs and a decrease in the attractiveness of smaller assets due to the nationalization debate and safety demands.
• Numis Securities mining analyst Cailey Barker stated that the decision to sell Palabora is likely due to the company not feeling comfortable extending the mine life and preferring to invest in more certain operations.
• A buyer for the stake is likely to be a local company given the size of the asset.

Statistics:

• Palabora Mining Company has a capacity to produce 80,000 metric tons of copper per year.
• Rio Tinto's stake in Palabora is valued at 57.7%.
• Anglo American's interest in Palabora is measured at 16.8%.
• Palabora accounted for 8% of Rio Tinto's mined copper production in the first half of 2011.
• Palabora can be mined until early 2016, but there are studies underway to expand the mine life to 2030.

Sources:

• Dow Jones Commodities News via Comtex, September 5, 2011.
• Liberum Capital.
• Numis Securities.
• Deutsche Presse-Agentur (DPA).
• DJN: Dow Jones Newswires Copyright (c) 2011 Dow Jones & Company, Inc.