Rio Tinto has agreed to sell two major Australian coal mining assets to Chinese controlled miner Yancoal for $US2.45 billion ($3.2 billion), under a deal that all but completes the company’s exit from power generation coal.
Tuesday’s agreement will see Yancoal take ownership of Rio’s 67.6 per cent stake in the Hunter Valley Operations mining complex (HVO) in New South Wales as well as Rio’s interests in the nearby Mt Thorley Warkworth mine.
Mt Thorley Warkworth is comprised of two open cut mines, with Rio owning 80 per cent of the Mt Thorley part and 56 per cent of the Warkworth mine.
The sales continue a divestment phase that has now seen Rio sell more than $US7 billion worth of assets since 2013.
The deal is a major statement of commitment to the Australian coal sector from Yancoal’s ultimate parent, Chinese state-owned company Yankuang Group, given the massive losses Yancoal has endured since its boom time acquisitions of Felix Resources in 2009, Syntech Resources and Wesfarmers Premier Coal mine in 2011 and Gloucester Coal through a merger in 2012.
Yancoal is 78 per cent owned by Hong Kong listed Yanzhou Coal, which itself is 87.8 per cent owned by Yankuang.
Yancoal will pay $US1.95 billion upfront, and make a $US100 million installment in each of the subsequent five years.
The Chinese dominated company can get the asset for $US2.35 billion if it pays that full amount before February 24, 2017.
Yancoal has also agreed to buy the 32.4 per cent of Hunter Valley Operations that is currently held by Mitsubishi for a sum beyond the $US2.45 billion agreed with Rio.
Yancoal has not reported an annual profit since 2012 and Tuesday’s acquisition agreement will significantly improve the quality of its asset portfolio and more than double the production it achieved in 2016.
Yancoal is expected to fund the acquisition via a rights issue and share placement later this year.
Rio said it would continue to earn royalties from the sale for ten years if the thermal coal price was higher than $US75 per tonne, and Yancoal has agreed to use Rio Tinto’s shipping subsidiary to ship certain coal cargoes.
Rio shareholders will get a chance to vote on the proposal between April and June. The deal is also subject to approval from Australian and Chinese government regulators, Yancoal shareholders and the New South Wales Government.
Yancoal can terminate the deal if it cannot source the funding, and in such a case would face a $23.5 million break fee.
“This sale delivers outstanding value for our shareholders and is consistent with our strategy of reshaping our portfolio to ensure the most effective use of capital,” said Rio Tinto chief executive Jean-Sebastien Jacques.
Deutsche Bank was the sole advisor to Rio on this, and several of the company’s previous Australian coal sales.