Glencore and Yancoal Australia are on the verge of joining forces in the Hunter Valley.
With Yancoal set to acquire Rio Tinto’s Coal & Allied division, Glencore has secured an agreement with the Chinese-controlled company to take a 49 per cent interest in the Hunter Valley Operations (HVO) coal mine and form a joint venture following completion of the deal.
Glencore’s never-say-die attitude towards acquiring Coal & Allied has proven to be rewarding. The company twice presented counter bids for Rio’s New South Wales thermal coal division, but was unable to sway the seller, with Yancoal named as the preferred buyer each time after upping its offers.
However, persistence has paid off and Glencore is on track to strengthen its coal portfolio in the region.
According to Glencore, it will pay $US1.139 billion in cash, plus a 27.9 per cent share of $US240 million in royalties over five years and 49 per cent of royalties that Yancoal will pay Rio Tinto on production from HVO in relation to the Coal & Allied acquisition.
Glencore will acquire 16.6 per cent of HVO from Yancoal and the companies “will work together” to purchase Mitsubishi’s 32.4 per cent interest in the operation to reach the 49 per cent stake.
Australian Mining yesterday reported the board of Yancoal majority owner, China’s Yanzhou, had approved the onsell of 16.6 per cent of HVO, signalling a follow-up deal was imminent.
Swiss-based Glencore will also buy $US300 million worth of Yancoal shares in the upcoming capital raising it has planned to fund the Coal & Allied transaction.
“The HVO JV will be jointly controlled by Glencore and Yancoal through a joint venture management committee comprising three representatives of both JV participants,” a Glencore statement said.
“An independent management team will run the operations on a day-to-day basis and will report to the committee.
“In order to deliver maximum operational synergies, Glencore will nominate the candidates for HVO general manager while Yancoal will nominate the candidates for HVO financial controller. Glencore will provide operational and support services to the HVO JV.”
Glencore believes the deal will unlock mining and operating synergies for the company in the Hunter Valley, with HVO adjacent to several of its existing mines.
“Glencore’s combined portfolio of mines in the Hunter Valley, including HVO, will have production capacity of 69 million tonnes per annum of high quality energy coal to meet increasing Asian demand,” Glencore explained.
The statement also outlined that Glencore would be the marketing agent for HVO coal sales into Japan, South Korea and other countries, excluding China, Taiwan, Thailand and Malaysia.
Glencore plans to fund the transaction with existing cash resources and committed facilities. The company expects the deal, which remains subject to it gaining regulatory approvals, to close within six months.
Yancoal’s original deal with Rio was slated in January this year. Following the takeover battle with Glencore, Rio’s shareholders approved a $US2.69 billion ($3.35 billion) offer from Yancoal in June.