16 June 2017

Glencore launches rival bid for Rio Tinto’s coal assets

Glencore is attempting to outbid Yanzhou Coal Mining for Coal & Allied Industries (CAI), a thermal coal mining subsidiary of Rio Tinto, with a USD 2,550 million cash offer that remains valid until 26th June this year. The payment, of which USD 500 million will be settled over five years after closing, will be funded by cash on hand and committed facilities.

Rio Tinto, which is seeking to exit from its thermal coal business, confirmed last week it had received the offer and said it would “give the proposal appropriate consideration and respond in due course.”

The surprise rival bid comes just as Chinese government-controlled Yanzhou Coal is finalising a USD 2,450 million agreement to acquire CAI. The group is carrying out the transaction via Yancoal Australia, its Australian Stock Exchange-listed subsidiary, and has just obtained the go-ahead from China’s State-owned Assets Supervision and Administration Commission and Ministry of Commerce, as well as the Korean Fair Trade Commission.

However, under the terms, Yanzhou Coal will still be given a chance to make a counter offer, which is something that the Chinese mining firm had signaled it would do.

Mitsubishi and CAI together hold coal mines in the Hunter Valley region in New South Wales. In addition to acquiring CAI, Glencore is seeking to take over Mitsubishi’s stakes in the joint ventures for USD 920 million. CAI’s portfolio also consists of coal assets in Mount Thorley, a 36.5 per cent interest in coal export terminal operator Port Waratah Coal Services and other regional landholdings.

Acquiring the Hunter Valley-based mines, which together have a production capacity of 81 million tonnes per annum, is part of Glencore’s strategy to capitalise on Asia’s rising demand for high efficiency and low emission coal.  

Billed as Australia’s largest coal provider, Glencore already owns 13 mining complexes in the country, some of which lie adjacent to CAI’s assets. Last year, it produced more than 54 million tonnes of saleable thermal and coking coal in New South Wales alone. The Anglo-Swiss company, which currently employs 7,500 Australians, also provides other commodities like copper, cotton, grain and oilseeds.

Listed on both the London and Johannesburg stock exchanges, Glencore posted revenue of USD 152,948 million in the 12 months ended 31st December 2016, up 3.8 per cent on the USD 147,351 million recorded in the previous year.  Net profit for the period totalled USD 936 million, compared to net loss of USD 8,114 million in 2015.

© Zephyr