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JOEL SAGET/JOEL SAGET/AFP/GETTY IMAGES

From the FT's Lex blog



It is almost painful to review the presentation Rio Tinto made at the time of its $38-billion (U.S.) all-cash offer for Montreal's Alcan four years ago, on the cusp of the worst economic crisis in decades. The headlines scream. A 65.5 per cent premium to the all-time high closing share price! Unconditional financing! Creation of a new global leader in aluminium!



There was, quite naturally, rather less testosterone swilling about Rio's announcement on Monday that it plans to offload assets representing more than a quarter of this year's planned aluminium output.

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Rio's management will never admit that doubling down on aluminium was a mistake -- even though the chairman who fronted the deal has gone, the governance structure that facilitated it has been revised, and spot prices for the metal itself are still languishing 11 per cent lower than the day the deal was signed.



But Rio's aluminium division, producing an earnings before interest, tax, depreciation and amortization margin of about 40 per cent in the year before Alcan, has never got close since. Every six months for the past three years the aluminium arm has taken between $750-million and $850-million in depreciation and amortization charges. Only in April this year, having restored its gearing to a sensible level, did Rio win back a single-A credit rating from all three major rating agencies.



Selling bits of the portfolio piecemeal will take a long time, and it seems unlikely that the Anglo-Australian miner will achieve book value, let alone the 11.3 times EBITDA it paid for Alcan, on an enterprise value basis. Still, in the absence of an apology, shareholders can at least expect plenty of interest in 13 assets, including smelters and alumina plants from Australia to the U.S., and a methodical, cool-headed approach to disposing of them. Qualities sorely missing, in fact, during that crazy summer of 2007.



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