Rio Tinto to redeem $1.5b of bonds to cut debt

Rio Tinto to redeem $1.5b of bonds to cut debt

Mining giant Rio Tinto (LSE:RIO) is looking to buy back US$1.5 billion of bonds taking advantage of increasing iron ore prices to slash its debt.

Rio issued a notice to bondholders saying it would make an offer to reclaim $1.5 billion of maturing debt over the next two years.

The original offer will be the holders of $1.75 billion of bonds that mature this year. If funds are still remaining the firm will extend the offer to the holders of $3 billion due for trade in 2018.

Rio’s bond buyoff shows 16 per cent of the $9 billion of bonds outstanding and around 6 per cent of the $25 billion of overall debt. The company will extend the average maturity of its debt by repaying the shorter debt.

The price of ore for delivery to China’s port of Qingdao increased 8.8 per cent to $68.70 per tonne on Friday morning. The price had further increased to $70.46 a tonne, indicating a 86 per cent improvement since mid-December of last year.

The fall in the iron ore price last year had dropped the price of mining bonds, but now those bonds have rebounded due to current iron ore prices.