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Rio Tinto’s Recent Developments: What Do They Mean?

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Organizational restructure

On June 21, 2016, Rio Tinto’s (RIO) newly appointed CEO (chief executive officer) Jean-Sébastien Jacques announced a number of changes to the company’s management and organizational structure. One of the most significant changes was the departure of iron ore CEO Andrew Harding. Chris Salisbury is now heading iron ore along with copper and coal.

The company also restructured its asset divisions into four product groups:

  • Aluminum
  • Copper & Diamonds
  • Energy & Minerals
  • Iron Ore

While coal moved out of the copper division into minerals, diamonds were clubbed with copper.

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Debt buyback

On June 7, 2016, Rio Tinto (RIO) announced a new cash tender offer to repurchase debt notes worth up to $3 billion due in 2018, 2020, 2021, and 2022. This is the company’s second debt buyback offer in about two months.

In April, Rio Tinto bought back ~$1.5 billion of notes due in 2017 and 2018. The company announced its successful completion on May 5, 2016. The company said the buyback is part of its ongoing capital management initiatives.

In its 2Q16 production results, the company stated that through its bond buyback programs in April and June, it has reduced its gross debt by $1.5 billion and $3 billion, respectively. The early redemption costs will, however, reduce earnings in the first half of 2016 by ~$125 million.

This move by Rio Tinto is not something unique to the company. Its peers are also taking advantage of buoyant commodity prices (COMT) to reduce their debts and prune their balance sheets.

Anglo American (AAUKY) spent $1.7 billion to repurchase its debt earlier this year. ArcelorMittal (MT) also bought back its bonds in 2016. Fortescue Metals Group (FSUGY) and South32 (SOUHY) have also been paying down their debts in recent months.

Cliffs Natural Resources (CLF) has reduced its debt by buying back its bonds, which were trading at a steep discount to face value.

Rio will announce its results for the first half of 2016 on August 3, 2016. Keep watching this page for more analysis on Rio and other iron ore companies.

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