Published: Wed, January 25, 2017
Markets | By Lucia Cruz

Rio Tinto Sells Coal & Allied Unit For USD2.45 Billion

Rio Tinto Sells Coal & Allied Unit For USD2.45 Billion

Output by the world's biggest producer and consumer of the fuel fell 9.4% in 2016, while imports reversed two years of declines to gain 25%, the biggest increase since 2012.

After completion of the sale, Rio Tinto will also be entitled to a quarterly coal price linked royalty calculated as $US2 a tonne.

Yancoal already owns seven Australian coal mines. Yanzhou Coal, which has a 78 per cent stake in Yancoal Australia, said it would invest as much as $US1 billion in fresh equity in its local arm, although the details would depend on the outcome of investor meetings, which are due to be held later next month.

Rio has sold at least $7.7 billion in assets since 2013 as it sought to weather a downturn in commodities sparked by China's slowing growth and a glut of raw materials.

Yancoal plans to fund the deal through a capital raising and a share sale.

After assessing several potential acquirers, Rio said in a statement: "Yancoal Australia provided the only offer that represented compelling value for the assets".

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News of the sale triggered a surge in Rio shares in London trading, which were ahead more than 3 per cent by mid-morning.

Yancoal hopes to add the purchase to their extensive portfolio in the Australian coal space, and are now the owner or operator of seven operations.

The transaction is subject to approval of Rio Tinto and Yanzhou shareholders as well as regulators. Last year Rio divested its Mount Pleasant project and completed the sale of a 40 percent stake in the Bengalla venture to New Hope Corp. for $617 million.

"I don't think they're going to be hoarding the cash", said Liberum's Knights. "We carry Coal and Allied in our forecasts at a value of $US700 million, suggesting a material premium was paid, based on the total deal value of $US2.45 billion", he said in a note.

Coal & Allied owns a 67.6% interest in the Hunter Valley operations mining complex, an 80% interest in the Mt Thorley mine and a 55.6% interest in the Warkworth mine, and a 36.5% interest in the Port Waratah Coal Services coal export terminal at the Port of Newcastle, as well as other undeveloped assets.

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