Rio a step closer to exit from coal

The Star Early Edition - - BUSINESS REPORT - Jesse Rise­bor­ough, Brett Fo­ley and Thomas Biesheuvel Lon­don and Mel­bourne

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.

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