Rio Tinto Sells Coal & Allied to Yancoal

A dragline strips overburden at the Mount Thorley Warkworth operation. (Photo: Rio Tinto)
Rio Tinto announced it has reached an agreement to sell Coal & Allied Industries Ltd. to Yancoal for up to $2.45 billion. This includes an initial $1.95 billion cash payment and $500 million in $100 million installments paid over five years. Prior to February 24, Yancoal Australia is entitled to elect an alternative purchase price structure of a single cash payment at completion of $2.35 billion.

“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,” said Rio Tinto Chief Executive J-S Jacques. “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.”

In addition to the sale consideration and potential royalties linked to the coal price, Rio Tinto will continue to benefit from earnings and cash flow generated by Coal & Allied until completion of the transaction. The Coal & Allied operations will also continue to use Rio Tinto Marine freight services following completion of the transaction.

Subject to all approvals, the transaction is expected to close in the second half of 2017.

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, multiseam 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 (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 metric tons (mt) of saleable thermal and semi-soft coking coal in 2016.

Rio Tinto has now announced or completed at least $7.7 billion of divestments 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. The restructuring of ownership of the Coal & Allied assets was completed with the joint venture partner Mitsubishi Development Pty Ltd. in 2016. Yancoal Australia is owned 78% by Yanzhou Coal Mining Co. Ltd. Yancoal Australia operates a portfolio of seven mines, projects under feasibility study, a suite of exploration assets and infrastructure shareholdings across New South Wales, Queensland and Western Australia.

As featured in Womp 2017 Vol 02 -