Rio Tinto has announced a deal to sell its Australian coal assets to Chinese state-owned mining firm Yancoal for more than $3 billion.
Rio said on January 24 it would send its Coal & Allied subsidiary to Yancoal for between US$2.35 billion and $US2.45 billion, in a deal subject to approval from the relevant Australian, New South Wales and Chinese government agencies.
Yancoal is owned by Yanzhou Coal Mining, itself a division of the Yanjuang Group, one of the largest state-owned coal mining businesses in China.
Rio has been looking to sell its Australian coal assets for some time, as part of a broader asset disposal program aimed at reducing company debt.
The ASX-, London- and New York-listed miner said it will receive a US$1.95 billion cash payment from Yancoal, and then US$500 million in aggregate deferred cash payments, payable as annual instalments of US$100 million over five years following completion of the deal, totalling US$2.45 billion.
Alternately Yancoal has the option to make a single cash payment of US$2.35 billion prior to February 24.
The upper end of the deal is therefore worth AU$3.24 billion, while the alternate price is worth roughly AU$3.11 billion.
Yancoal will also pay Rio Tinto US$2 for every tonne of coal sold over the next 10 years, whenever the Newcastle benchmark price for thermal coal is above US$75 per tonne.
Coal & Allied owns and operates multiple multi-seam open cut mines in the Hunter Valley. It has a 67.6% interest in the Hunter Valley Operations mine, an 80% interest in the Mount Thorley mine, a 55.6% interest in the Warkworth mine, a 36.5% interest in Port Waratah Coal Services, and other undeveloped coal assets, including various landholdings.
Altogether the Coal & Allied assets produced 17.1 million tonnes of saleable thermal and semi-soft coking coal in 2016.
“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,” Rio Tinto chief executive J-S Jacques said.
“Our world-class assets, strong balance sheet and relentless focus on cash will ensure that we deliver superior returns 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.”
Yancoal chairman Xiyong Li was also happy with the deal.
“This is a transformative and exciting acquisition for Yancoal shareholders and will form the basis for our future growth and success as Australia’s largest pure-play coal company,” he said.