Rio Tinto will divest another contentious African asset as the company's leadership conceded its Mongolian copper venture was experiencing sovereign risk challenges and was complicating the company's shift away from fossil fuels.

Rio announced on Monday it would sell its 68.8 per cent stake in Namibia's Rossing uranium mine to China National Uranium Corporation for a sum that could range between $US6.5 million and $US106.5 million.

Rossing is the latest in a string of unwanted Rio assets to be divested, and recent experience suggests there is a strong chance the proceeds from the sale will be returned to shareholders just as the proceeds of Australian coal divestments have been in the past two years.

But the Rossing sale will also liberate Rio from a contentious governance issue given the investment arm of the Iranian government was a fellow shareholder in the Namibian mine.

The Iranian Foreign Investments Company owns 15.29 per cent of Rossing and while it has not had directors on the Rossing board nor purchased Rossing uranium in recent years, the relationship was uncomfortable for Rio in the context of sanctions imposed on Iran by western nations including the US.

Those sanctions were lifted to some degree in 2015 when Iran agreed with nations including the US, Germany, Russia and the UK, to reduce its nuclear capabilities, but the sanctions were reinforced this month by US President Donald Trump.

The sale continues the shrinking of Rio's presence in the developing world, which has been marred by scandals in Guinea and Mozambique.

Speaking in Sydney on Monday, Rio chairman Simon Thompson said those scandals had clearly "dented" Rio's reputation, while chief executive Jean-Sebastien Jacques was frank about challenges Rio was still facing in the developed world, including at the Oyu Tolgoi copper mine in Mongolia.

'We do have some challenges'
The relationship between Rio and Mongolia appears to have deteriorated in 2018 with Mongolia seeking changes to interest rates on loans, reviewing the 2009 investment agreement that governs Rio's investment in the mine, and changing the power supply rules that Rio must abide by.

Mr Jacques has traditionally expressed confidence that common sense will prevail in Mongolian politics despite the emotion surrounding the $US5.3 billion expansion of Oyu Tolgoi, which is widely viewed as a bellwether for foreign investment in the developing nation.

But on Monday Mr Jacques named Mongolia as one of two places Rio was seeing sovereign risk.

"We do have some challenges, we have sovereign risk challenges in our Minerals Sands businesses in Africa and in Mongolia," he said, during a presentation to civil society groups in Sydney.

Mongolia's decision to compel Rio to source Oyu Tolgoi's power from within Mongolia, rather than continuing to import power from neighbouring China, means the mine will almost certainly require a new coal-fired power station, with the Mongolian government keen for the station to built in the Tavan Tolgoi coalfield.

Mr Thompson described Oyu Tolgoi's likely reliance on coal-fired power as an "intractable problem" for a company that had sought to distance itself from fossil fuels by selling its coal mines.

"The decision to disinvest from fossil fuels was informed by our view on the supply and demand outlook for thermal coal and the opportunity that we saw to sell our coal assets for full value and to redeploy the capital into sectors where the outlook is better, in a carbon-constrained world," said Mr Thompson on Monday.

"We do face some intractable problems, including our reliance on coal-fired power in Mongolia and in South Africa. But in both cases, our operations clearly bring huge economic and social benefits, and play a major role in poverty alleviation in two relatively poor countries."

The Rossing sale comes barely two weeks after Rio netted $US576 million ($799 million) from the sale of a wharf and nearby land in the Canadian province of British Columbia.

Rio said the $US6.5 million was payable upon completion of the deal, and the total transaction cost could rise as high as $US106.5 million depending on uranium spot prices and the profitability of Rossing between now and 2025.

The transaction comes after a 44 per cent rally in uranium prices since April.

While still at very low levels by historic standards, the price rally has followed supply curtailments by Canadian producer Cameco and Kazakhstan's state-owned producer Kazatomprom, which floated a minority portion of its shares for the first time earlier this month in Astana and London.

Published Date:2018-11-26