According to The Wall Street Journal, Chinese firm, Wuhan Iron & Steel Corporation, is the latest potential suitor to drop out of the running for Rio Tinto Limited's (ASX: RIO) share of the Iron Ore of Canada (IOC) assets.
Since early 2013 Rio's 59% interest has been up for grabs but the three most likely suitors have each failed to make any significant offers which Rio would be tempted to accept. Glencore Xstrata, Teck Resources, Blackstone and Wuhan have each dropped out of the running for the assets.
Teck was the first to pull out, after it sought a substantially lower price (some analysts have valued Rio's stake between $US2 billion to $US3 billion). Glencore has shown interest in the assets on a number of occasions but Rio isn't expecting a deal anytime soon. Similarly, Wuhan said: "There was some interaction, but no concrete progress."
Rio is believed to have a price of approximately $US3.7 billion on the assets, which produced 9 million tonnes of iron ore (pellets and concentrate) in 2013. According to the company's most recent production report, IOC is expected to bring concentrate production capacity to a total of 23.3 Mt/a, during the first-half of 2014.
As Canada's biggest iron ore producer, it's surprising the assets have not received any significant attention from international suitors. However, many miners are currently in consolidation mode, slashing costs and ridding themselves of non-core assets.
In recent times Rio has been forced to reintegrate assets which failed to sell, including its diamond and aluminium businesses. CEO Sam Walsh was quoted as saying: "Where people are making lacklustre offers, we are not going to be rushing into something stupid… I think the action that we took in relation to PACAL (Pacific Aluminium) and diamonds show that very starkly."
Foolish takeaway
Rio has successfully divested or sold non-core assets totalling $3.5 billion in the past 12 months, but the IOC assets are proving to be very difficult. Playing the commodities super-cycle can be tough, even for mining giants. With large amounts of uncertainty in iron ore markets and resources in general, it looks likely that Rio will be forced to integrate the business back into the group later this year.
