Fear of China seems to have caused Rio Tinto to ignore the $US2.55 billion offer for its Hunter Valley coal mining assets from rival miner, Glencore.
Instead Rio says it is sticking with the original bidder, Yancoal Australia which has revised its terms to pay Rio a larger upfront payment, as Glencore proposed to do.
But the dollar value of the offer from Yancoal hasn’t changed at $US2.45 billion, which Rio will get up front, instead of a large deposit and then five equal payments.
Despite that, Rio chief executive Jean-Sébastien Jacques said in a statement last night, that the Yancoal Australia offere was the “best value” and greater “transaction certainty” for its shareholders.
“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,” Mr Jacques said in the statement.
Yancoal has tweaked its offer such that it will now pay $US2.45 billion upfront, instead of $US1.95 billion and five annual installments of $US100 million. Glencore said last night that it was reviewing Rio’s statement and would respond in due course. Rio had to give a decision on Glencore’s offer by June 26, the day before Rio shareholders meet to vote on the sale. So the company still has time to produce a more attractive offer.
It still has time to table another offer before Rio shareholders vote on the Yancoal bid on June 27.
Yancoal has yet to raise the financing for its offer but Rio said on Tuesday night that it has received additional information and confirmations regarding Yancoal’s funding plan. However, it did not provide any further details.
It also did not say if Yancoal still had the option to walk away from the deal and a pay a break fee of just $US24 million if it could not raise financing. The Financial Times says “This raises the possibility that Yancoal could scrap its offer if the coal market suddenly tanks later this year."
In its statement, Rio said Glencore has not secured regulatory clearance for its proposal in Australia, China, Korea or Taiwan and there was “uncertainty that these approvals could be received in a timely manner.”
(China took six months to clear Glencore’s acquisition of just oRo’s Clermont mine – in partnership with Sumitomo of Japan for $US1 billion – back in 2013). The FT reported that analysts believe “China’s powerful Ministry of Commerce would have little grounds to block the deal because most of the coal produced by Coal & Allied is sold to customers and Japan and Glencore had already received regulatory approval from Tokyo."
“Rio is wary of offending China after problems with earlier deals involving state-controlled Chinalco,” The FT reported.
The most notable was the help Chinalco gave Rio in 2008 and 2009 via share purchases and other support in the wake of the GFC as the huge debt from Rio’s ill-timed takeover of Alcan ($US44 billion), threatened to send the company broke. In 2016 Rio sold its stake in the huge Simandou iron ore project in guinea to Chinalco.
Rio also had the Stern Hu affair in 2009 and 2010 when an he was jailed in China for allegedly stealing state secrets and bribery. he is due to be released next year after having his sentence cut twice.
Glencore controls coal mines in the upper Hunter Valley next to the mines of Rio’s Coal & Allied, subsidiary in partnership with Mitsubishi of Japan. Glencore is also offering more money than Yancoal for Mitsubishi’s 34% stake in the mines.
Together Glencore and the Rio mines would be the biggest coal exporter from Australia with sales of more than 81 million tonnes a year. Rio shares fell half a per cent yesterday to $59.72.
