RE: Rio coming for Solg?28 Feb 2019 14:27
Rio should also consider OZ Minerals and its Carrepateena copper and gold project in South Australia or a much more ambitious deal out of left field involving $US19 billion, New York Stock Exchange-listed Freeport-McMoran, according to the fund manager.
Under a deal unlikely to be considered by Rio given its cautious approach to acquisitions, Mr Cleary said Freeport's unwanted businesses could be sold off while Rio retained the copper assets.
The ideas and suggestions were coming thick and fast on Thursday as the market turned its attention in earnest to what some worry are Rio's somewhat limited growth options.
Rio chief executive Jean-Sebastien Jacques has made it clear the company is on the lookout for aquisitions but will set the bar very high.
"We have a watching brief, we have a very high threshold in relation to [mergers and acquisitions]," he said on Wednesday.
"Are we looking at opportunities? The answer is yes, but we are not going to rush in M&A ... it has to really create value for shareholders."
Rio points to organic growth forecast of 2 per cent a year over the next five years from within its existing portfolio as one reason it is in no hurry. It is also spending $US250 million on exploration this year, with the lion's share directed to finding copper.
A focus will be the Rio's exciting Winu copper discovery in the Paterson Range in the East Pilbara which, depending on the results of more drilling, has the potential to shape any M&A plans.
UBS analyst Glyn Lawcock said Rio's success with the drill bit had been a long time coming. "It has been a long time between drinks in terms of success with the drill bit, which is why companies like Rio and BHP turned to M&A to drive growth," he said.
Mr Lawcock said Mr Jacques had to be mindful that one mis-step in M&A could undo a lot of the good work in restoring investor confidence in Rio.
"The last thing they would want to do is destroy the premium and the re-rating that they are experiencing over the last few years of doing nothing other than pay down debt and make cash returns," he said.
"is the time right (for M&A)? It is the right time when you see an opportunity that you think is mis-priced. I don't think they feel any pressure."
Mr Jacques has made restoring investor confidence a high priority since being appointed to the top job at Rio in july 2016, and that part of that strategy has been to hand back cash.
He delivered in spades this week, delivering a record $US13.5 billion ($19 billion) in dividends and share buybacks to investors, as Rio moved to a net cash position for the first time in more than 20 years.
Mr Lawcock said Mr Jacques was clawing back the premiums associated with Rio stock during the "Two Bobs" era.
"He (Jacques) acknowledges that 20 years ago when Bob (Sir Robert) Wilson and Bob Adams stewarded the company as chairman and head of strategy, they traded at a higher premium than they do today, as well as trading at a
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