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Rio Tinto chooses Yancoal over Glencore in $2.4bn coal asset sale

The global mining giant Rio Tinto has seemingly found a buyer for its Hunter Valley coalmines, despite stiff competition from other potential buyers. Y...

Dale Benton
|Jun 23|magazine7 min read

The global mining giant Rio Tinto has seemingly found a buyer for its Hunter Valley coalmines, despite stiff competition from other potential buyers.

Yancoal, one of Australia’s largest and leading coal miners, has been named by Rio Tinto as the favoured buyer of its wholly-owned subsidiary, Coal & Allied Industries.

This comes after the company also revealed that it had received a counter offer from fellow mining leaders Glencore.

Glencore had submitted a proposal to acquire Rio Tinto’s 100 per cent interest for $2.55 billion cash plus a coal price-linked royalty, with the cash comprising:

  • $2.05 billion cash payable on completion;
  • $500 million in aggregate deferred cash payments, payable as annual instalments of $100 million over five years following completion.

Yancoal has taken the lead following its promise to make a single payment for the assets of around $2.4bn which includes a coal price linked royalty.

Further details of the decision from Rio Tinto:

  • Receipt of confirmation from Yancoal that it has received or will waive all the regulatory approvals that are conditions precedent to its ability to close, including Chinese regulatory approvals from the National Development and Reform Commission (NDRC), the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and the Ministry of Commerce of the People’s Republic of China (MOFCOM), the State Administration of Foreign Exchange of the People’s Republic of China (SAFE) and Australian regulatory approvals from the Foreign Investment Review Board (FIRB), the Australian Competition & Consumer Commission (ACCC) and the NSW Minister for Resources.
  • Glencore having not secured clearance from various jurisdictions including Australia (FIRB and ACCC) and China (MOFCOM) or from the Korean or Taiwanese authorities and there being uncertainty that these approvals can be achieved in a timely manner.
  • The expectation that there will be a much faster completion timeframe under Yancoal’s proposal. It is in the best interests of Rio Tinto shareholders and employees, and Coal & Allied business customers and other stakeholders, to transact on a basis that minimises uncertainty.

Rio Tinto chief executive J-S Jacques said “We believe Yancoal’s offer to purchase our thermal coal assets for $2.45 billion offers the best value and greater transaction certainty for shareholders. “Yancoal’s revised offer is the most attractive because it removes the deferred payment structure, can meet the timeline we have set for the transaction, and has given us certainty regarding the outstanding regulatory approvals required.

 “The sale of Coal & Allied will create outstanding value for shareholders and is consistent with our strategy of simplifying our portfolio to ensure the most effective use of our capital”. Under the UK Listing Rules and ASX Listing Rules, the transaction with Yancoal requires the approval of Rio Tinto shareholders and accordingly, the Rio Tinto plc general meeting has been convened for 27 June 2017 and the Rio Tinto Limited general meeting has been convened for 29 June 2017. These meetings will go ahead as planned.”

The transaction is expected to be complete in the third quarter of 2017.