Rio coal deal ce­ments ties with China

China Daily (Hong Kong) - - BUSINESS - By MENG FANBIN meng­fan­bin@chi­nadaily.com.cn

Rio Tinto has tight­ened ties with China after sell­ing its Aus­tralian coal as­sets to State­backed Yankuang Group for $2.69 bil­lion.

In­dus­try in­sid­ers stressed that last week’s an­nounce­ment goes be­yond this deal, and il­lus­trates the re­la­tion­ship be­tween one of the lead­ing multi­na­tional min­ing groups and the world’s sec­ond big­gest econ­omy.

“In­stead of a sim­ple deal be­tween two com­pa­nies in the coal sec­tor, it shows Rio Tinto is hop­ing to ex­pand its Chi­nese iron ore mar­ket,” said Mi Pengqi, an an­a­lyst at JLC Net­work Tech­nol­ogy Co Ltd, a com­mod­ity in­for­ma­tion provider based in Bei­jing.

“That makes sense as China is one of the largest iron and steel con­sumers in the world,” he added.

The Aus­tralian ac­qui­si­tion cer­tainly cre­ated a buzz in the coal sec­tor.

Yan­coal Aus­tralia Ltd, which is part of Yankuang Group, will now take over Rio Tinto’s coal min­ing op­er­a­tions in New South Wales.

“This is the trans­for­ma­tive deal for Yan­coal as we be­come the largest pure-play coal pro­ducer in Aus­tralia and a pos­i­tive sign for con­tin­ued in­vest­ment into the lo­cal re­sources sec­tor,” Rein­hold Schmidt, chief ex­ec­u­tive at Yan­coal Aus­tralia, told the Fi­nan­cial Times.

But the de­ci­sion by Rio Tinto will cre­ate more than a few rip­ples.

China is the An­glo-Aus­tralian group’s fastest grow­ing mar­ket and the fourth largest in the world.

As one of four min­ing gi­ants and the sec­ond-largest iron ore sup­plier in the world, Rio Tinto pro­duces a quar­ter of the iron ore glob­ally.

“Rio is very close to China and they prob­a­bly don’t want to risk that re­la­tion­ship,” Hunter Hill­coat, an an­a­lyst at In­vestec Plc in Lon­don, told Bloomberg.

Since the com­mod­ity down­turn of 2014, ma­jor min­ing com­pa­nies have been cut­ting spend­ing and re­duc­ing cap­i­tal debt.

In a move to slim down, Rio Tinto has de­cided to spin off its non-core as­sets to boost cash flow. “Iron ore, in­stead of coal, is Rio’s main business,” Mi said.

“It is in that sec­tor that the com­pany has a lead­ing po­si­tion and pric­ing power,” he added.

The deal will also in­crease the pric­ing power for Chi­nese coal com­pa­nies in the Asia-Pa­cific mar­ket, ac­cord­ing to Yin Mingde, deputy general man­ager of Yankuang Group.

Yin pointed out that the ac­qui­si­tion would take Yan­coal’s coal re­serves to 5.71 bil­lion met­ric tons with an­nual pro­duc­tion run­ning at 42.79 mil­lion tons.

“The fig­ures mean that the com­pany will be­come one of Aus­tralia’s big­gest ‘pure-play pro­duc­ers’ of the com­mod­ity, with coal re­serves and pro­duc­tion op­er­a­tions in Aus­tralia just be­hind Glen­core and Rio Tinto,” Yin said. “With the ex­pan­sion of pro­duc­tion ca­pac­ity, Yan­coal would be­come an im­por­tant Aus­tralian coal ex­porter to Ja­pan and South Korea.

“It is ex­pected to par­tic­i­pate in the ne­go­ti­a­tion on steam coal be­tween Ja­pan and Aus­tralia,” he added. “This will en­hance the pric­ing power of Chi­nese coal com­pa­nies.”

The ac­qui­si­tion of Rio Tinto’s two open cast mines in the Hunter Val­ley re­gion, which is more than two hours north of Syd­ney, and rail­way and port as­sets, will boost Yan­coal’s pres­ence.

For the past three years, the com­pany has turned a profit even dur­ing the down­turn of 2015 when coal prices crashed.

The deal is an im­por­tant at­tempt to pro­mote and im­ple­ment the com­pany’s in­ter­na­tional in­vest­ment strat­egy, and to strengthen its business over­seas, ac­cord­ing to a com­pany state­ment.

“The trans­ac­tion is ex­pected to be of­fi­cially com­plete in the third quar­ter of this year and it will in­crease Yan­coal’s com­pe­ti­tion abil­ity greatly, even in Chi­nese coal mar­ket,” Mi said.

price of Rio Tinto’s Aus­tralian coal as­sets that were sold to Yankuang Group

HU GUOLIN / XIN­HUA

Work­ers load ther­mal coal at a stor­age base in Ji­u­jiang, Jiangxi prov­ince.

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