Coal news and updates

Rio Tinto has snubbed Glencore’s higher offer for its NSW coal mines, with the mining giant choosing Yancoal Australia’s improved bid and comparative regulatory certainty over the financing certainty of Glencore’s approach.

 

Rio Tinto late on Tuesday announced it viewed Yancoal as the preferred bidder for its Coal & Allied business after the Chinese group sweetened the conditions of its offer, all but killing off Glencore’s eleventh-hour attempt to snare the company.

 

Glencore had earlier this month approached Rio Tinto with an offer of $US2.55 billion ($3.34bn) for Coal & Allied, trumping Yancoal’s ealier offer of $US2.45bn.

 

But Yancoal sealed the deal after agreeing to bring forward the final $US500m purchase price instalments while also offering more assurances around its ability to fund the acquisition.

 

In a statement, Rio Tinto chief executive Jean-Sebastien Jacques said the company had engaged in active discussion with both parties and had assessed the rival offers on a number of factors including price, regulatory risk and delays, funding certainty, and deal execution timeline.

 

“We believe Yancoal’s offer to purchase our thermal coal assets for $US2.45 billion offers the best value and greater transaction certainty for shareholders,” Mr Jacques said.

 

“Yancoal’s revised offer is the most attractive because it removes the deferred payment structure, can meet the timeline we have set for the transaction, and has given us certainty regarding the outstanding regulatory approvals required.”

 

Glencore had long harboured a desire for the Coal & Allied assets, which offer significant synergies if combined with Glencore’s existing coal assets in NSW.

 

On top of offering a higher amount when it announced its offer, Glencore looked to take advantage of the ongoing uncertainty around Yancoal’s ability to fund its acquisition by touting its offer as “fully funded”.

 

But the Glencore offer carried significantly less regulatory certainty than the Yancoal offer, with the Chinese bid having worked its way through almost all key government approvals since its launch back in February.

 

In contrast, the Glencore offer was conditional on a host of approvals, including most significantly the sign-off from China’s Ministry of Commerce and the Australian Competition and Consumer Commission.

 

Yancoal assuaged any temptations Rio Tinto may have had about the Glencore offer by dropping some of the few remaining conditions, bringing forward some deferred payments and unveiling fresh assurances about its ability to fund the offer.

 

Yancoal had originally proposed paying the final $US500m of the acquisition price in five instalments of $US100m each annually for five years. Instead, the additional $US500m will be paid upon completion of the deal.

 

Yancoal’s major shareholder, Yankuang Group, has also pledged to place up to $US2.1bn in Yancoal to help it complete the transaction if the company fails to secure enough support through its promised capital raising. Yankuang will now also pay a $US100m deposit that it will forfeit if Yancoal fails to fund the deal.

 

“With the certainty of funding, confirmation of regulatory approvals and removal of regulatory conditions precedent, Yancoal continues to provide a compelling offer for the strategic acquisition of the Coal & Allied assets,” Yancoal chief executive Reinhold Schmidt said.

Source: The Australian