Mining and Heavy Industries

Yancoal reclaims pole position for Rio’s Hunter mines

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Rio Tinto has confirmed Yancoal as the buyer for its thermal coal mines in the Hunter Region, after a competitive bidding process involving Glencore resulted in an improved bid worth $2.69 billion.

The announcement from Rio appears to be the end of an ongoing bidding war between Yancoal and Glencore, which took place throughout June.

A deal was initially announced on January 24, for Yancoal to buy Rio’s Coal & Allied business for $1.95 billion plus a coal price-linked royalty, and $500 million of payments deferred over five years.

Glencore muddied the waters on June 9, offering Rio $2.05 billion up-front, plus $500 million in deferred payments over five years, and a coal price-linked royalty.

11 days later, on June 20, Rio announced it had agreed to improved terms from Yancoal, which would pay all $2.45 billion of its initial offer up-front, along with a coal price-linked royalty.

Glencore then re-upped the bidding on June 23, offering Rio $2.675 billion up-front and a coal price-linked royalty, followed by C&A’s post-tax cash flow, or a $25 million post tax payment – whichever is higher – every month between September 1, 2017, and March 31, 2018, representing a minimum of $175 million in additional payments.

Yancoal then submitted a further proposal to acquire C&A for $2.45 billion up-front, along with $240 million in guaranteed, unconditional royalty payments of which $200 million will be received by the end of 2018. The new Yancoal offer also includes a coal price-linked royalty, which is capped at $410 million.

Rio’s board considered both of the latest offers from Glencore and Yancoal and opted to recommend its shareholders support the latter’s bid.

“The revised offer from Yancoal of $2.69 billion offers compelling value to our shareholders for our Australian thermal coal assets,” Rio chief executive J-S Jacques said.

“This sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal’s strong proposal.”

The Rio board said the Yancoal offer held “a greater level of completion certainty”. Yancoal agreed to increase its break fee – which will be paid by Yancoal if the deal falls through – from $100 million to $225 million.

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