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June 21, 2017

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Rio Tinto favors Yancoal in mine deal

RIO Tinto yesterday recommended China-backed Yancoal as the buyer of most of its Australian coal mines, rebuffing a surprise higher bid from commodities giant Glencore earlier this month.

The world’s second-largest miner said in January that it was selling Coal & Allied to Yancoal Australia, majority-controlled by China’s Yanzhou Coal, for US$2.45 billion.

But Glencore, which like Yancoal also operates several coal mines in Australia, offered US$100 million more for the assets — in New South Wales state — earlier this month.

Rio said it spoke to both parties but still favored Yancoal since the deal was expected to be completed faster due to greater funding and regulatory certainty.

Yanzhou Coal is one of China’s largest mining groups by capitalization.

“We believe Yancoal’s offer to purchase our thermal coal assets for US$2.45 billion offers the best value and greater transaction certainty for shareholders,” Rio’ Chief Executive Jean-Sebastien 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,” he said in a statement.

Under the original proposal, Yancoal was to pay an initial sum of US$1.95 billion and the rest as deferred payments.

But it will now make a single payment of US$2.45 billion, Rio said.

Yancoal had already been given the green light by Australia’s Foreign Investment Review Board, while the Glencore plan was subject to regulatory approval.

Dual-listed Rio said it would put the Yancoal offer to shareholders this month, with the transaction expected to be completed by the third quarter.

Rio, which in February reported a surge in annual net profit thanks to improving commodity prices, is selling Coal & Allied as part of a divestment drive which analysts expect will lead to a complete exit from the sector.


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