Rio Tinto CEO Jacques: No South32 Style Spinoff Coming

Mining giant Rio Tinto (RIO) announced a major structural reorganization several few weeks ago. As part of the restructuring, a group of ‘non core’ assets were lumped together inside of the newly formed Energy and Minerals group leading to speculation from analysts and reporters (and us) of a spinoff. After all, fellow mining peer BHP Billiton (BHP) did something similar last year when it spun off its ‘non core assets’ into South32 (SOUHY)! That company has done well – isn’t this a monkey see monkey do world?

Apparently not.

In several interviews after officially taking over as boss, new CEO Jean-Sebastien Jacques put the kibosh on any spinoff talk. His words were direct and quite to the point – here he is talking with Reuters:

Jean-Sebastien Jacques, who took the helm on Saturday, said there would be no spin off. “The answer is no,” Jacques told Reuters from London in a telephone interview.

and a quote from the WSJ:

“Are we going to create a South32, or South33? The answer is, in one word, no,” said Mr. Jacques.

South33 – nice one. Hard to get much clearer than a one word answer of ‘No’. Mr. Jacques was clear that he and the company are focused on growth and not shedding assets. In both articles he mentioned that the Energy & Minerals unit would be run to generate cash flow for investment and possibly incubate new business ideas. One potential new area of growth for the company is lithium, which has become quite a ‘hot’ commodity due to the forecasted growth of electric vehicles and lithium ion batteries:

“If we were to develop a position in new commodities like lithium, that is where we would develop it.”

The company is spending millions of dollars studying the possibilities for a lithium deposit in Serbia at a time when prices for that commodity have surged on expectations of rising demand from companies such as electric-car maker Tesla Motors Inc.

Another area of potential growth for the company is copper, which Mr. Jacques sees as being among the first to emerge from ‘oversupply’ status. Ultimately, it appears that these unloved assets are going to remain in house and there will be no spinoff anytime soon, barring some quick about face (perhaps activist forced?). Maybe South32’s success inspired Mr. Jacques to keep those assets in house and focus on rehabilitating those businesses. Whether or not that can be done within the confines of a much larger organization remains to be seen.

Disclosure: Author holds no position in any stock mentioned.