Freight Rail

Rio tabs Yancoal as favourite for Hunter mines

Newcastle coal terminal. Photo: Chris Mackey / Southern Cross Maritime

Rio Tinto has shrugged off a bid from Glencore for its coal mines in the Hunter Region, saying a renewed offer from the original partner in the deal – Yancoal – had secured the Chinese-backed company as the preferred bidder at this stage.

Rio’s board on Tuesday reconfirmed its recommendation that shareholders vote in favour of selling its wholly-owned Coal & Allied business to Yancoal, despite Glencore offering $100 million more for the mines last week.

Yancoal’s original $2.45 billion bid, announced earlier this year, was trumped by Glencore last week, with the commodities giant offering $2.55 billion.

But Yancoal, given the immediate opportunity to improve its bid, has since done just that.

Yancoal’s new bid, while still worth just $2.45 billion, is considered superior by Rio Tinto, because the company’s Chinese backers have agreed to pay the cash up front, rather than in deferred installations.

The deal will still also include a coal price-linked royalty into the future.

The board said it had “engaged in active discussion with both parties,” and had assessed a number of factors, including the potential of regulatory approval difficulties.

There is some thought that the ACCC may challenge Glencore’s bid, due to the commodity giant’s major existing presence in the Hunter.

Yancoal, meanwhile, has received or will waive all regulatory approvals, according to Rio. There is, therefore, an “expectation that there will be a much faster completion timeframe under Yancoal’s proposal,” Rio said.

“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,” Rio boss J-S Jacques 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.”

Glencore last week said the Coal & Allied assets would be a highly strategic addition to its Australian portfolio.

“The addition of the C&A assets to our existing portfolio in the Hunter Valley would unlock large scale mining and operating synergies,” Glencore said. “Glencore’s combined portfolio of mines in the Hunter Valley would have production capacity of 81 million tonnes per annum of high energy coal that feeds increasing Asian demand for high efficiency, low emission coal.”