Rio sells North’s forestry assets

Denver — Rio Tinto (RTP-N) has unloaded a forestry products subsidiary onto a Tasmanian company for A$335 million in cash, which could be used to sweeten the bid for the Labrador Iron Ore Royalty Income Fund (LIF.UN-T).

The mining giant acquired North Forest Products last year in the takeover of Australian-based North. The buyer, Gunns Ltd., also granted Rio Tinto an option to acquire transferable carbon credits from the land associated with the subsidiary.

The cash from the transaction, which is expected to close by the end of May, could come in handy given Rio Tinto’s proposed buyout of the Labrador Iron Ore Royalty Income Fund, which holds an 18.9% stake in Iron Ore Co. of Canada (IOC).

Rio Tinto picked up 56.1% of IOC in the North transaction, and hopes to boost its interest to 75% with the Labrador Fund. However, management of the Fund recently called Rio Tinto’s $13.50-per-unit offer a “low-ball bid,” and recommended shareholders hold out for more.

CIBC World Markets, retained by the Fund, estimates that the fair market value of the fund ranges between $18 and $24.70 per unit. The fund’s 7% overriding royalty on gross revenue and its 10-per-ton commission on all sales account for 75% of the value.

The fund has 30 million outstanding units, and the valuation calls for Rio Tinto to chip in between $135 million and $336 million of the original $405-million bid.