Yancoal outpoints Glencore in Coal & Allied takeover battle

Image: Rio Tinto

Rio Tinto has again backed Yancoal as the buyer of its Hunter Valley thermal coal assets despite Glencore’s efforts to outbid the Chinese company.

The takeover battle intensified Friday last week when Glencore raised its offer for Rio subsidiary, Coal & Allied Industries, to $US2.68 billion ($3.53 billion) in cash, plus a coal price linked royalty.

Yancoal then upped the ante by strengthening its offer by adding $US240 million in royalty payments and an increased break free to its previous $US2.45 billion cash bid.

The latest offer from Yancoal was enough to keep Rio in its corner, with the diversified miner recommending that shareholders back the improved bid.

A Rio statement outlined that the company’s board had “considered both of the latest offers and is recommending Yancoal’s improved offer to its shareholders based on greater transaction certainty and higher net present value”.

Rio chief executive officer Jean-Sebastien Jacques said the revised $US2.69 billion bid from Yancoal offered compelling value.

“This sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal’s strong proposal,” Jacques said.

Rio shareholders are scheduled to vote on the deal, in both London and Sydney, this week.

If Yancoal is finally successful in the takeover battle it would become Australia’s largest coal-focused miner. The Chinese company, which is owned by Yanzhou Coal Mining, made its original bid for Coal & Allied in January.

Coal & Allied’s assets include majority shares in the Hunter Valley Operations mine, the Mount Thorley mine and the Warkworth mine. The three operations produced 25.9 million tonnes (Mt) of thermal and semi-soft coking coal in 2016, of which 17.1Mt were Rio Tinto’s share.

Last month Yancoal also launched a $US710 million tag-along offer for Mitsubishi’s 32.4 per cent stake in the Hunter Valley operations.

Both offers had been accepted before Glencore entered the pursuit for Coal & Allied.