Rio a step closer to exit from coal

RIO TINTO Group moved closer to an exit from thermal coal after the world’s second-biggest miner agreed to sell most of its mines to a company controlled by China’s Yanzhou Coal Mining for $2.45 billion (R32.85bn). Shares in both companies rose yesterday.

The sale, which includes Rio’s biggest Australian coal operation in the Hunter Valley region, leaves the company with only two coal-producing mines in the country that was once the cornerstone of its energy business.

“It was kind of getting to the point where thermal was irrelevant, they’re an iron ore, copper, aluminum and industrial-minerals business,” said Richard Knights, a mining analyst at Liberum Capital in London. “Now is a fantastic time to offload coal assets.”

Biggest increase Thermal coal prices surged last year after China introduced mining restrictions. Output by the world’s biggest producer and consumer of the fuel fell 9.4 percent in 2016, while imports reversed two years of declines to gain 25 percent, the biggest increase since 2012. Australia’s Newcastle coal, an Asian thermal benchmark, surged more than 80 percent in 2016, snapping five years of declines.

Rio advanced 3 percent to A$66.69 (R677.70) a share by 3.34pm in Sydney yesterday, after closing at the highest since March 2015 on Tuesday. Yanzhou Coal Mining gained 0.5 percent to HK$5.88 (R10.16), after jumping the most in six weeks on Tuesday.

The deal is the first major transaction by Rio under chief executive Jean Sebastien Jacques, who took over from Sam Walsh in July. Prior to being made chief executive, Jacques headed the copper business. A company restructuring in 2015 led to coal being incorporated into the unit led by him.

The sale to Yancoal Australia includes an initial $1.95bn cash payment and $500 million in annual instalments of $100m following completion. Yancoal, which is 13 percent-owned by Asian commodity trading giant Noble Group, said on Tuesday the acquisition would make it Australia’s largest pure-play producer of the commodity. Chinese state-owned Yanzhou Coal owns 78 percent of the Australian Securities Exchange-listed company.

The deal requires the approval of Australia’s Foreign Investment Review Board and Hans Hendrischke, a professor of Chinese business and management at the University of Sydney Business School, expects it to clear the regulatory hurdle. Yancoal Australia jumped as much as 4.2 percent to 50 Australian cents (R5.08), while Noble Group was steady at 17.3 Singapore cents (R1.64). Rio Tinto and Yancoal shareholders need to approve the deal, which is expected to be completed in the September quarter.

Yancoal will also make an offer to Mitsubishi Development, which owns a 32.4 percent stake in the Hunter Valley coal assets.

Mitsubishi is considering whether or not to sell its share in the mine, said a spokesperson who declined to elaborate and asked not to be identified, citing company policy.

The parent added 0.6 percent to 2 601.5 yen (R308.20) in Tokyo trading. Rio has sold at least $7.7bn in assets since 2013.