Yancoal seeks to raise $US2.5bn to fund Coal & Allied acquisition

Hunter Valley Operations. Copyright © 2017 Rio Tinto

Yancoal Australia has unveiled plans for a $US2.5 billion ($3.14 billion) equity raising it will use to fund the acquisition of Rio Tinto’s Coal & Allied in the Hunter Valley.

The Chinese-controlled company secured a deal to acquire Coal & Allied from Rio Tinto for $US2.69 billion in June. The transaction involves a $US2.45 billion cash payment and $US240 million of royalties over five years following completion of the deal.

Acquiring Coal & Allied will give Yancoal a 67.6 per cent interest in the Hunter Valley Operations (HVO) site, an 80 per cent interest in the Mt Thorley mine, a 55.6 per cent share in the Warkworth operation, and 36.5 per cent of the Port Waratah Coal services export terminal at Newcastle.

Yancoal today said it would launch a 23.6-for-one pro-rata renounceable entitlement offer to raise about $US2.35 billion of the funds. Yanzhou, Yancoal’s Chinese majority owner, will contribute $US1 billion through the offer.

The remaining $US150 million of shares will be placed with strategic investors, according to Yancoal, which will use cash and loans to complete funding.

Yancoal chairman Xiyong Li said the company’s expansion through the Coal & Allied acquisition provided new investment opportunities.

“The pro-rata entitlement offer has been determined in the interests of all shareholders and is expected to generate the necessary funding to support the next stage of our business’ evolution,” he said.

“The strategic acquisition of Coal & Allied will redefine our position within the global coal marketplace and strengthen Yancoal Australia for the future.”

As reported by Australian Mining last week, Yancoal will form a joint venture with Glencore at the HVO complex once the acquisition from Rio has been completed.

Glencore, which made two counter bids for Coal & Allied earlier in 2017, secured an agreement with Yancoal to take a 49 per cent stake in HVO and form the joint venture.

Swiss-based Glencore will pay Yancoal  $US1.139 billion in cash, plus a 27.9 per cent share of the $US240 million in royalties, as well as 49 per cent of royalties on production from HVO that Rio will receive in relation to the Coal & Allied acquisition.

Glencore will acquire 16.6 per cent of HVO from Yancoal and it will also purchase Mitsubishi’s 32.4 per cent interest in the operation to reach the 49 per cent stake.

Mitsubishi has already accepted a tag-along offer from Yancoal to acquire its share in HVO for $US710 million.

Yancoal chief executive officer Reinhold Schmidt said the Chinese company continued to implement a robust strategy for continued growth, with the Hunter Valley acquisition redefining its role as an employer and producer in the resources sector.

“The expansion of our portfolio of tier one assets, combined with a strong and sustainable balance sheet and future cash flow generation, will allow us to create greater shareholder value.”

The Yancoal entitlement offer will be launched on August 10, before closing on August 25.