RTZ sells stake in Rio Algom to simplify holdings

British mining giant RTZ has elected to sell its 51.5% stake in Rio Algom (TSE) for $362.3 million as part of a plan to streamline its North American holdings.

In a press release, RTZ said it was selling the shares to avoid any conflict of interest between its holdings in Rio Algom and other North American assets, particularly wholly owned Kennecott of Utah. However, an analyst who asked not to be identified, said RTZ is sending out a clear signal that it sees more growth potential in Kennecott which, like Rio Algom, is involved in base metal mining and exploration.

Shares of Rio Algom reacted to the announcement by plummeting to $15.12, down $1.37 on June 8, the first trading day after news of the deal hit the streets. Under the terms of the sale, purchasers will pay $16.10 each for the 22.5 million Rio Algom shares owned by RTZ’s wholly owned subsidiary, RTZ Canada, in three instalments over the next two years.

The first instalment of $5.40 is payable at the close of trading June 25, the second of $5.40 on June 25, 1993, and the final instalment of $5.30 on June 24, 1994.

The shares are being sold through an underwriting lead-managed by Toronto brokerage houses Gordon Capital Corp., RBC Dominion Securities and Wood Gundy Inc. Until full payment of the purchase price, the common shares will be evidenced by instalment receipts and a preliminary short-form prospectus relating to the offering will be filed in all provinces of Canada. Completion of the sale will transfer control of Rio Algom from Britain to Canada since 48.5% of the company is already in the hands of minority shareholders. Like most other major mining companies, Rio Algom has been hurt by the recession and the resulting downturn in metal prices. Net earnings fell to $24.5 million in 1991 from $87.3 million in 1990 while revenues also declined to $1 billion from $1.3 billion in the same period.

Having closed its East Kemptville tin mine in Nova Scotia, Rio Algom recently made arrangements for a US$180-million financing package needed to develop the low-cost Cerro Colorado copper mine in northern Chile.

With 1991 revenues of US$840 million, Kennecott is a big player in the Northwest Territories diamond rush where it has already signed farm-in agreements with Aber Resources (TSE), BRE-X Minerals (ASE) and Thermal Exploration (ASE).

RTZ said it expects to realize an extraordinary loss of about 30 million pounds sterling ($64.5 million) on the sale of its interest in Rio Algom and proceeds will be used for general corporate purposes.

Neither the instalment receipts nor the shares have been or will be registered under the U.S. Securities Act of 1933 and neither may be offered or sold in the U.S. The instalment receipts will not be listed for trading on the American Stock Exchange.