BHP sells RBM stake to Rio for US$1.9bn
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Nicholas Grove is a Morningstar journalist.
As part of the restructuring of RBM in 2009, BHP and Rio signed a put option agreement that enabled BHP to sell its interest in RBM to Rio pursuant to an agreed valuation process.
BHP and Rio announced on 1 February 2012 that this option had been exercised and that completion of the transaction was conditional upon the fulfilment of customary regulatory approvals, all of which have now been met.
In a statement, BHP said the sale reflects the company's commitment to a "simpler, more scalable upstream portfolio".
Prior to completion of the sale, Rio held a 37 per cent equity stake in RBM with BHP also holding 37 per cent, Black Economic Empowerment (BEE) parties 24 per cent, and employees 2 per cent.
Rio Tinto manages the operation and is responsible for the marketing of RBM's products.
Rio Tinto Diamonds & Minerals chief executive Alan Davies said the company's doubling of its stake in the asset further strengthens its titanium dioxide portfolio at a time when the long-term outlook remains robust.
"Demand for feedstocks is expected to grow strongly, needing the equivalent of a new operation the size of RBM to be built every two and a half years," he said.
In 2011, RBM produced 14 per cent of global titanium dioxide feedstock sales and 18 per cent of global zircon sales.
Rio said it continues to replace legacy titanium dioxide feedstock contracts, increasing exposure to more favourable market prices.
Coal mine to close
Also on Monday, the 50/50 BHP Billiton Mitsubishi Alliance (BMA) joint venture said it would cease production at its Gregory open-cut coal mine in Queensland from 10 October 2012.
The decision follows an operational review that determined the mine was no longer profitable in the current economic environment of falling prices, high costs and a strong Australian dollar.
BMA asset president, Stephen Dumble, said production costs for the open-cut Gregory mine currently exceed the revenue from product sales, and therefore the only option available to the company was to cease production.
"We understand that this decision will have an impact on our employees, their families and the Emerald community," he said.
"We will work closely with our workforce and look for opportunities to redeploy affected employees to other BMA operations. We will also work with community stakeholders throughout the process."
The announcement was made on the same day Swiss mining giant Xstrata announced it will be reducing its Australian headcount by 600, as a result of low coal prices, high input costs and a strong Australian dollar.
BHP also announced the foreign exchange rates that will apply for the final dividend of 57 US cents that was declared at its full-year results announcement in August.
A dividend of 55.083427 Australian cents will be paid, using an exchange rate of US$1.034794.