Rio Tinto has agreed to sell its NSW coal mining arm to Chinese giant Yancoal for $3.2 billion.
Ending months of speculation, mining giant Rio Tinto has struck the biggest single asset sale in its history for their Coal & Allied business. Rio has agreed to offload its remaining coal mines in NSW to a Chinese-controlled company, Yancoal for $US2.45 billion (AU$3.23 billion). In the process, China’s Yanzhou Coal Mining subsidiary — Yancoal, has now emerged as one of the largest coal miners in Australia buying one of Australia's largest single coal operations and a suite of mines in New South Wales and Queensland.
The Coal & Allied business includes Rio Tinto’s interests in the Hunter Valley Operations (HVO) mine, an 80% stake in the Mount Thorley mine, a 55.6% interest in the Warkworth mine and a 36.5% share in a Newcastle coal export terminal.
The mines sold to Yancoal produced 25.9 million tonnes of thermal and semi-soft coking coal in 2016. The Chinese-government controlled Yancoal is now poised to become Australia’s biggest coal miner and will more than double in size, producing 42 million tonnes of coal in Australia. However, Yancoal already has a sizeable presence in Australia’s coal sector as the owner or operator of seven operations across QLD and NSW.
Yancoal is yet to announce how it will fund the purchase of Rio Tinto's wholly-owned Australian subsidiary Coal & Allied Industries Limited, although it is expected that the debt will take much of 2017 to be settled.
The mega deal involves Rio receiving:
- An initial $1.95 billion cash payment, payable at completion.
- $500 million in aggregate deferred cash payments, payable as annual instalments of $100 million over five years after completion.
- Entitlement to ongoing royalty payments.
The transaction would all but complete Rio’s exit from both NSW and thermal coal production. Since 2013, Rio has now netted more than $US7.7 billion in selling off assets, including its share of the Clermont coal mine and the Mount Pleasant coal project. The sale to Yancoal also follows the $US600 million deal reached a little more than a year ago with New Hope Collieries for the sale of Rio's stake in the Bengalla coal mine, which is also in NSW.
Yancoal, the world’s second-largest miner is believed to be speeding up plans to move away from fuel. In 2016, coal prices jumped after China slashed production, but major companies including Peabody Energy and Rio Tinto have been trying to exit coal assets as investors are becoming cautious over the emergence of renewables.
Rio chief executive Jean-Sébastien Jacques said the sale "delivers outstanding value for our shareholders".
We are confident that Coal & Allied will continue to contribute to the New South Wales economy and the communities of the Hunter Valley under a new owner," Jacques said in a statement.
The transaction is a highly conditional one and is still subject to approvals from the Australian Government, Chinese regulatory agencies and shareholders. However, the single biggest hurdle is likely to be funding, as Yancoal is entitled to terminate the deal if it cannot secure enough funding on “reasonably acceptable terms”.
For the uninitiated, Rio Tinto is a British-Australian multinational and one of the world's largest metals and mining corporations. Although we think it is a bit of a shame these mines are not held by an Australian (partly) company anymore, we're happy to hear that the work will stay at home.