Two Canadian pension funds eye Rio Tinto’s Iron Ore Co of Canada: report

Two of Canada's largest pension funds are inviting investment firms to join them to bid for Anglo-Australian miner Rio Tinto's Canadian iron-ore assets, The Wall Street Journal yesterday reported, citing people familiar with the matter.

CPP Investment Board (CPPIB) and Caisse de depot et placement du Quebec are both seeking partners to table separate bids for Rio Tinto's 59.7 per cent stake in Iron Ore Co. of Canada (IOC), which is estimated to be worth around $4 billion, valuing the entire business at roughly $7 billion, the report said.

CPPIB is working with US private-equity firm Apollo Global Management and is looking for other partners, while Caisse de depot has held discussions with possible partners on bidding for IOC, the report added.

Other potential buyers who may bid are private-equity firm Blackstone Group, state-controlled China Minmetals, commodities and mining giant Glencore Xtrata, Canada's Tech Resources and India's Aditya Birla Group.

The WSJ last week reported that Vedanta Resources Plc has pulled out of the race to acquire IOC since the acquisition would add to the company's huge debt pile. (See: Vedanta backs out from bidding for Rio Tinto's Canadian iron-ore assets)

In March, London-based Rio Tinto had hired investment banks Credit Suisse and Canadian Imperial Bank of Commerce to sell its 59.7-per cent stake in IOC, Canada's largest iron-ore producer.

Other stakeholders in IOC are Japan's Mitsubishi Corp with 26.2 per cent and Labrador Iron Ore Royalty Income Corp with 15.1 per cent.

Labrador Iron Ore Royalty also later announced that it will also sell its stake, but is yet to get any bids.

IOC is the largest manufacturer of iron ore pellets in Canada, with North America, European and Asian steel producers as it customers.

The company operates a mine, concentrator and a pellet plant in Labrador City, Newfoundland and Labrador, as well as port facilities located in Quebec. It also operates a 418km railroad that links the mine to the port.

It recently spent $800 million in expansion in order to increase annual iron-ore output capacity to 26 million tons, but even that is nowhere near the 353 million tons that Rio Tinto plans to extract annually from the Pilbara by mid-2015.

IOC contributed $230 million net profit to Rio Tinto in 2012, compared to $9.2 billion for the whole of its iron ore operations.

Rio Tinto's newly appointed CEO Sam Walsh had earlier said that he would sell non-core and under-performing assets to bolster the balance sheet of the company.

The company, which generates four-fifths of its earning from iron ore, may be selling IOC for its lower grade of ore, and focus on the higher grade ores at Pilbara in Australia and its under development Simandou iron ore mine in Guinea.