December 10, 2008 / 10:53 PM / 9 years ago

Rio Tinto moves to slow Canadian projects

(In U.S. dollars, unless noted)

By Cameron French

TORONTO, Dec 10 (Reuters) - Rio Tinto’s (RIO.L) global spending cuts and layoffs, announced on Wednesday, likely mean delays for iron ore and aluminum smelter projects in Canada, and they have also prompted speculation the company could sell its stake in the Diavik diamond mine in Canada’s North.

A sharp rise in shares of Harry Winston Diamond HW.TO, which is Rio’s partner in the Diavik mine, suggested investors expect all or part of the mine could be sold, analysts said.

Meanwhile, Rio’s 60 percent owned Iron Ore Co of Canada said it will suspend a planned C$800 million ($630 million) expansion, which could be the first of other such delays, a Rio spokesman suggested.

Rio said it would not give details on possible moves until next year, but the spokesman for its Canadian operations, Stefano Bertolli, said billions of dollars in planned aluminum smelter investment could be slowed, though likely not canceled.

“The projects that have been approved and that have been announced are advancing. What we’re looking at is spend rate, and how quickly these will come on line,” he said.

The mining giant, which acquired Canadian aluminum producer Alcan last year and until recently was the subject of a takeover bid from BHP Billiton (BLT.L), will cut 14,000 jobs, slash capital spending and sell more assets as it struggles with nearly $40 billion in debt and flagging metals prices.

Rio said in October it would commit an additional $300 million to an upgrade of the Kitimat aluminum smelter in British Columbia, which is expected to cost about $2 billion overall. Rio is also expanding two smelters in Quebec’s Saguenay region.

The company said it will target higher-cost operations. But with deals for cheap power from provincial utilities, the Canadian aluminum assets are among the company’s cheapest.

“They have announced they’ve delayed some of the projects, so I assume that means whatever they had planned for expansion in Canada is probably on hold at this point,” said David Whetham, a fund manager at Scotia Cassels.

All told, Rio’s measures will reduce its workforce by 13 percent, while capital spending will be cut by more than half to $4 billion, it said.

DIAVIK SALE?

Bertolli wouldn’t comment on the future of Rio’s 60 percent stake in the Diavik diamond mine, which is often been seen as a candidate for sale as Rio tries to pay off the Alcan debt.

Shares of Harry Winston, which owns the other 40 percent of the mine, rose 40 percent on Wednesday, which analysts said suggested investors see a potential ownership change.

“If (Rio) sells their interest it is possible that Harry Winston sells their 40 percent as well, at the same time, to a company that would want to own 100 percent of the assets,” said John Hughes, an analyst at Desjardins Securities.

BHP Billiton’s (BHP.AX) Ekati diamond mine is located near Diavik in Canada’s Northwest Territories, while DeBeers has often been seen as a potential buyer.

Rio has not made clear whether Diavik is considered a core asset, or a non-core asset that could be sold off.

Harry Winston shares rose C$1.73 to C$5.98 on the Toronto Stock Exchange on Wednesday. After markets closed, the company reported it swung to a third-quarter profit, earning $71.9 million, or $1.17 a share, in the period ended Oct. 31. That was up from a loss of $7.4 million, or 13 cents a share, in the year-before quarter.

$1=$1.26 Canadian Reporting by Cameron French; editing by Rob Wilson

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