Rio Tinto, the world’s second-largest miner, is selling about $7 billion worth of the unglamorous kit that keeps its mines running: power infrastructure serving its Pilbara iron ore operations in Western Australia, together with infrastructure assets in Canada. The mines themselves are not for sale. That distinction — keep the rocks, sell the plumbing — is basically the founding insight of infrastructure investing, and the world’s biggest pools of patient money have noticed.
The latest entrant is a big one. Singapore’s sovereign wealth fund GIC, a $US1.2 trillion (A$1.7 trillion) investor, is preparing to bid for the assets and has mandated JPMorgan to help put a bid together, according to Street Talk at the AFR, citing sources speaking on condition of anonymity. GIC is, per those sources, running the ruler over both the Pilbara power assets and the Canadian ones; taken together, they’re expected to be worth about A$7 billion.
It will not be alone in the data room. KKR and Ares are also in the running, Street Talk reports, and the auction has been building for months: KKR dealmakers were holding informal meetings with Rio’s advisers back in May, ahead of a sale slated for launch in the third quarter. And Australia’s A$4.5 trillion superannuation system has an emissary too — IFM Investors, the $291 billion manager owned by 15 industry super funds, is conducting early due diligence, Street Talk reported last week.
The mechanism here is worth a moment. Mining is a thrillingly cyclical business: iron ore prices go up, iron ore prices go down, shareholders hold on. Infrastructure finance is the opposite temperament entirely — what you want is a predictable cheque arriving for thirty years, attached to something nobody can do without. Owning the power assets that feed a giant iron ore operation is a way of holding mining exposure with the volatility carefully removed, or at least relabelled. Which is why the bidding bench looks the way it does: a sovereign wealth fund, two buyout giants with ‘infrastructure’ written on the door, and the retirement savings of Australian workers.
Rio, for its part, gets to take A$7 billion of cyclical, capital-hungry assets off its books in cash. The buyers get to put the same iron-ore-adjacent cash flows into a report labelled ‘stable long-term infrastructure income.’ Both descriptions are accurate, which is a nice trick, and is roughly what the A$7 billion is for.