Rio Tinto (RIO) last night revealed that it has sold its remaining coal interests in NSW to the Chinese-controlled company Yancoal.
But first it has to call a meeting of shareholders because the deal is a related party transaction. A date for that meeting has yet to be fixed.
Rio will raise between $US2.35 billion and $US2.45 billion from the sale of Coal and Allied Industries to Yancoal, it said, while also being entitled to receive ongoing royalty payments from Yancoal. The deal was announced just before 8 pm yesterday (well after the market had closed) and came after Rio shares jumped 3.9% to $64.76 as Chinese iron ore and steel futures rose sharply ahead of the about to start Chinese Lunar New Year holidays.
The sale follows the $US600 million deal reached a year ago with New Hope Collieries for the sale of Rio’s stake in the Bengalla coal mine, which is also located in NSW.
The surge last year in global coal prices has boosted the price Rio will receive, but did not convince the company that the long term future for coal had improved. If anything the Rio sale is a negative for coal.
Rio will receive an immediate $US1.95 billion, in cash, with the remaining $US500 million paid in annual instalments of $US100 million. But Rio says that prior to February 24 2017 “Yancoal Australia is entitled to elect an alternative purchase price structure of a single cash payment at completion of $2.35 billion."
Rio chief executive Jean-Sébastien Jacques said in last night’s statement that 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,” he said in the statement issued last night. Yancoal owns a number of low quality coal mines in NSW based on the old Gloucester Coal Co.
The transaction is subject to certain conditions precedent being satisfied, including approvals from the Australian Government, Chinese regulatory agencies and the NSW Government.
“As a result of the shareholding levels of various Chinese state-owned entities in each of Yankuang, Yanzhou and Chinalco (Aluminium Corporation of China), and Chinalco being a 10.1 per cent shareholder in the Rio Tinto Group, Yancoal Australia is considered to be a related party of Rio Tinto for the purposes of the UK Listing Rules and the ASX Listing Rules,” Rio Tinto said last night.
"Accordingly, approval is also required from a majority of independent Rio Tinto shareholders (that is, not including Chinalco and any other entities considered to be associates of Chinalco under the UK Listing Rules).
“Subject to all approvals and other conditions precedent being satisfied, it is expected that the transaction will complete in the second half of 2017,” Rio said.
Rio said the sale of Coal & Allied represents "the culmination of an extensive assessment of all strategic options for these assets. Rio Tinto has conducted a comprehensive market testing and price discovery process and has held extensive discussions with several potential acquirers of the asset but Yancoal Australia provided the only offer that represented compelling value for the assets.”
Rio Tinto has now announced or completed at least $7.7 billion of asset sales since 2013. These transactions include the sale of Rio Tinto’s interests in the Clermont coal mine, the Bengalla coal mine and the Mount Pleasant coal project, both in NSW. In addition, the restructuring of ownership of the Coal & Allied assets was completed with our joint venture partner Mitsubishi Development Pty Ltd in 2016.
Coal & Allied is the holding company for Rio Tinto’s thermal coal business in the Hunter Valley region of New South Wales. 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% in Port Waratah Coal Services (which owns a coal export terminal located at the Port of Newcastle) and other undeveloped coal assets, including various landholdings.
The Hunter Valley Operations and Mount Thorley Warkworth mines together produced 25.9 million tonnes of saleable thermal and semi-soft coking coal in 2016 (17.1 million tonnes Rio Tinto share).
The net assets subject to this sale agreement had earnings before tax of $102 million in the year to 31 December 2015, and a gross asset value attributable to them of $1,895 million as at 30 June 2016, Rio said last night.
