Rio Tinto could follow trend and spin-off Alcan, says Citigroup

5th Dec 2014 11:39

Citigroup has said that a potential spin-off of Rio Tinto's Canadian aluminium business could be good for the business.Brazilian mining group Vale announced this week that it is looking to float its base-metals division on the stock market in Toronto to "unlock" value, possibly selling a 30-40% stake in the division next year.The move follows BHP Billiton's recently-announced de-merger of assets, as it plans to spin off its non-core activities into a separate division.Citi said that this could put pressure on Rio "follow suit" with the spin-off of Alcan."We would also argue that it is a good point in the cycle to be spinning out as there are few predators and the new companies have a chance to build a strategy. We believe it could drive a further wave of opportunities in the sector," the US bank said.It believes Alcan is "worth more outside of Rio than within" and said it doesn't offer Rio any diversification benefits given its overall margins."We believe there would be 10-20% value uplift on Rio from spinning out Alcan.Citi maintained a 'buy' rating and 3,700p target price for Rio's shares, which were down 0.9% at 2,906.5p by 12:28 on Friday.