Rio Tinto restructure looks 'relatively narrow' with more significant steps still needed, RBC says

[Iron Ore reclaimer machine and stockpile ]
Dazman/E+ via Getty Images

Rio Tinto (NYSE:RIO [https://seekingalpha.com/symbol/RIO]) is little changed in Wednesday's trading after revealing a restructuring plan [https://seekingalpha.com/news/4489380-rio-tinto-unveils-new-leadership-three-division-structure-to-drive-the-next-growth-phase] that includes a combination of its lithium business with the aluminum product group, now one of three core product groups alongside copper and iron ore.

CEO Simon Trott, who took over as the company's CEO on August 25 and previously led the iron ore business, is seeking to simplify Rio Tinto's (NYSE:RIO [https://seekingalpha.com/symbol/RIO]) structure in a shift designed to cut costs as iron ore and lithium prices fall.

Beyond the core units, Rio (RIO [https://seekingalpha.com/symbol/RIO]) will review whether to keep its borates operations in California and an iron and titanium business in northern Quebec; the businesses will be overseen by Chief Commercial Officer Bold Baatar while they are reviewed.

Rio's (RIO [https://seekingalpha.com/symbol/RIO]) portfolio simplification and leadership changes are not surprising but do not constitute a significant management shakeup, and a review of the borates and titanium division - which comprises just 2% of total EBITDA and net asset value - could be seen as "low-hanging fruit," RBC Capital analysts wrote.

After the "relatively narrow" steps, the miner still must make significant decisions on its capital allocation priorities across its pipeline of lithium projects, iron ore replacement mines and copper growth projects, RBC said.

Rio (RIO [https://seekingalpha.com/symbol/RIO]) probably would be best off divesting its borates and titanium businesses, Citi analyst Paul McTaggart said, since those operations are "now too small within the Rio portfolio and are not growth assets," and added that the simplification move to focus on three key businesses seems generally positive.

MORE ON RIO TINTO

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