* Glencore, Sumitomo to own 25.05 percent each
* Glencore to manage asset and marketing
* Rio paring down debts of $22 bln, cutting costs
MELBOURNE/LONDON, Oct 25 Rio Tinto has
agreed to sell its majority stake in Australia's third-largest
thermal coal mine to Glencore Xstrata and Japan's Sumitomo
Corporation for just over $1 billion, pushing ahead with plans
to focus on larger, core operations.
Rio put its 50.1 percent stake in the Clermont mine in
Queensland on the block earlier this year, but appetite had been
considered by industry advisers to be weak, given a poor outlook
for coal prices and high costs in Australia.
The sale - for $1.015 billion in cash - will be a welcome
boost for Rio's plan to sell down unwanted assets, as the
world's third-largest miner pares debts of $22 billion, cuts
costs and tries to meet shareholder demands for better returns.
Rio said on Friday it had announced or completed almost $3
billion of divestments this year, but its larger planned sales -
including a stake in Canada's largest iron ore producer, Iron
Ore Company of Canada (IOC) - have struggled. The miner has
already scrapped the sale of its diamond unit and aluminium.
"It's not a bad price (for Rio), the market will be
reasonably pleased," said analyst Des Kilalea at RBC Capital
Markets. "But the one everyone is looking for is IOC."
Glencore, the largest trader of seaborne thermal
coal and a leading thermal coal producer, has slashed costs in
its coal unit as it cuts back following the takeover of miner
Xstrata. But it has also said it can benefit from increased
blending and trading opportunities - as well as from a rise in
thermal coal prices that it says are at unsustainable lows.
"Glencore is contrarian, this is the sort of deal that they
do - buying up assets that no one else appears to want," one
senior industry source said. "This is not huge money for them,
and it is about controlling a bigger piece of production."
The deal will be financed by debt for around half the
purchase price, meaning Glencore and partner Sumitomo will put
in only just over $250 million in cash each.
Clermont, a large-scale open pit mine, is also relatively
low cost, thanks to a low strip ratio - meaning less waste has
to be removed to expose ore for mining - and the ability to sell
90 percent of coal without washing.
After this cash deal, Glencore and Sumitomo will
each own half of the stake through GS Coal Pty, meaning an
economic interest of 25.05 percent each. Glencore will assume
Rio's role in managing the mine and marketing production.
Glencore and Rio have separately been discussing a possible
combination of their coal assets in the Hunter Valley region of
New South Wales, to help cut costs and shore up margins with
thermal coal prices holding close to four-year lows.
But sources familiar with the matter have said those talks
were progressing slowly.
Glencore is the top thermal coal exporter in Australia,
while Rio Tinto is the largest thermal coal producer in
Australia's Hunter Valley.
Glencore said in a presentation last month that a third of
seaborne power-station coal production is loss-making, hit by
oversupply. It has said the situation is unsustainable, as
demand from new generating capacity in Asia increases.
Rio's co-owners in the Clermont mine are Mitsubishi Corp
, Japan's Electric Power Development Co Ltd and
a consortium of Japanese power companies.
Dutch trader Trafigura and India's Adani Enterprises Ltd
had put in bids below $850 million for the Clermont
stake, the Wall Street Journal reported earlier this month.
Deutsche Bank advised Rio Tinto on the sale.