MELBOURNE Rio Tinto (RIO.AX) has agreed to give away the Blair Athol coal mine in Australia to Linc Energy LNC.AX, which plans to reopen the mine to expand its coal unit ahead of a spin-off, the two companies said on Thursday.
Rio Tinto and its partners closed the mine last November as its resource had nearly run out after 30 years of operations and it was losing money amid a coal price slump.
Linc Energy, with lower overheads than a giant like Rio Tinto, was betting it could run a small mine more cheaply, an analyst said.
"This is a shrewd move by Linc and may provide some financial benefit as, given the size, it's highly likely they can operate Blair Athol at a much lower cost than Rio could," UBS analyst Glyn Lawcock said.
The benefit to Rio is that Linc will be picking up part of the bill for rehabilitation costs and any environmental obligations at the site. Linc and Rio declined to disclose those costs.
Linc's New Emerald Coal division plans to produce 3 million tonnes a year of thermal coal, used in power stations, which would boost the business revenue ahead of a planned spin-off.
Rio and its Blair Athol partners - Leichardt Coal, Japan's Electric Power Development Co Ltd (J-Power) (9513.T) and Japan Coal Development Co Ltd - have agreed to contribute to the rehabilitation costs from 2016 to 2019.
Shares in Linc, which plans to shift its listing to Singapore from Australia in the hopes of attracting new investors, rose 2.2 percent to A$1.285, outpacing a 0.5 percent rise in the broader market.
Rio is still trying to sell the nearby Clermont coal mine and a minority stake in its Coal & Allied business in Australia, together valued at around $3.2 billion, but analysts and bankers have said they would tough to sell with thermal coal prices holding near four-year lows.
"I think it's going to be a bit harder to find a buyer (for those) because you're talking serious money," Lawcock said.
Rival BHP Billiton (BHP.AX) failed to find a buyer for its Gregory Crinum mining complex in Australia, which was thought to be worth about $400 million.
(Reporting by Sonali Paul; Editing by Tom Hogue)