Rio Tinto to sell Winchester Coal stake for $200m

Rio Tinto is to sell its 75% stake in a Queensland project to Australia’s Whitehaven Coal for $200m, in its second deal this week to shed coal assets.

Rio is also in the process of selling its remaining Australian coal asset, a stake in the Kestrel underground mine.

“We believe this agreement for the sale of Winchester South represents the best option for the future development of the project while delivering attractive value for the company” Rio Tinto CEO Jean-Sebastien Jacques said.

The deal, subject to Australian regulatory approvals, is broken down into $150m payable to Rio Tinto by Whitehaven on the date of completion and an unconditional payment of $50m payable a year later.

Whitehaven Coal said it would fund the purchase with cash and existing facilities, and it expected it to be concluded in the second quarter.

Retail property manager Scentre Group has a 25% stake in Winchester South.

Once developed, Winchester South is expected to produce coking and thermal coal.

Whitehaven Coal MD and CEO Paul Flynn said the project was “a significant strategic acquisition”, which complemented existing assets and tallied with a longer-term plan to meet Asian demand for premium quality coking coal.

Glencore, the world’s biggest shipper of export grade coal, has also said it expected to continue to find value in high quality coal.

Rio Tinto on Tuesday announced it had agreed to sell to Glencore the Hail Creek coal mine and Valeria coal project in Australia for $1.7bn.

Sven Reinke, senior vicepresident, and Anke Richter, Associate MD at Moody’s, said on Thursday Glencore’s purchase was “credit positive”.

“The proximity to Glencore’s existing operations and the existing infrastructure offers material potential to realise synergies and could result in a short pay back period of about five years,” Reinke said.

Some investors shun the fuel because of concerns about climate change and because more environmental alternatives are becoming more competitive.

Coal miners’ profits have been boosted by a coal price rally in 2018.

Those bullish about coal said falls in investment had tightened the market, increasing the value of a commodity still favoured in parts of the world as a cheap, easy source of power.

Whitehaven Coal posted a 63% rise in first-half net profit, while Glencore and the other majors have rallied strongly from the deep commodity markets crash of 2015-16.

Rio Tinto’s share price was 1.9% lower in midmorning London trade, slightly underperforming the broader index. Whitehaven closed down 1.5% in Australia.

THE SALE OF WINCHESTER SOUTH REPRESENTS THE BEST OPTION FOR THE … DEVELOPMENT OF THE PROJECT