Yancoal trumps Glencore as preferred buyer of Rio’s Hunter Valley coal assets

Image: Rio Tinto

Rio Tinto has named China’s Yancoal as the preferred buyer of its Hunter Valley coal division, Coal & Allied Industries, ahead of Glencore, which made a superior bid earlier this month.

Glencore offered $US2.55 billion ($3.35 billion) in cash for Rio’s coal assets in an attempt to trump the $US2.45 billion bid made by Yancoal, which is owned by China’s Yanzhou Coal Mining.

However, Yancoal has since improved its offer to include $US500 million of deferred payments, payable on completion of the transaction.

In a company statement, Rio said it had assessed several factors when considering both proposals, including price and value; the risk that regulatory approvals will not be granted, or will be significantly delayed; funding certainty; and deal execution timeline.

Rio chief executive Jean-Sébastien Jacques said the company believed Yancoal’s offer represented the best value and greater transaction certainty.

“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,” he said.

“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.”

Rio recommended the Yancoal proposal based on the Chinese company’s “agreement to accelerate all deferred payments and make a single payment of $2.45 billion at completion to purchase the Coal & Allied assets plus coal price-linked royalty.”

The statement added that Rio also expects Yancoal to be able to complete its deal quicker than the Glencore proposal.

Yancoal made its original bid for Coal & Allied in January, proposing a deal that involved a $US1.95 billion upfront payment and the potential for a further $US500 million over five years.

The Foreign Investment Review Board (FIRB) delivered its approval of Yancoal’s revised offer in April.

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

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.