Rio Tinto sells coal assets to China's Yancoal for up to $2.45 billion

SYDNEY/LONDON (Reuters) - Rio Tinto Plc has agreed to sell its Australian unit Coal & Allied Industries Ltd to Chinese government-controlled Yancoal Australia Ltd for up to $2.45 billion in cash, it said on Tuesday.

A Rio Tinto logo is displayed on the front of a wall panel during a news conference in Sydney November 29, 2012. REUTERS/Tim Wimborne/File Photo

Analysts said the price was a good deal for selling off thermal coal assets, which Rio no longer views as core. Rio’s share price rose 4 percent in London trade, just above gains of 3.5 percent for the wider sector.

“This sale delivers outstanding value for our shareholders and is consistent with our strategy of reshaping our portfolio to ensure the most effective use of capital,” Rio Tinto CEO Jean-Sebastien Jacques said in a statement.

The deal involves an initial sum of $1.95 billion, followed by further annual installments, taking the total price up to $2.45 billion. Yancoal also has an option to make a single cash payment of $2.35 billion, Rio said.

Following a slump in commodity prices in 2015, companies across the mining sector sold assets to restore their balance sheets. Raw materials prices began recovering in 2016.

Rio, now considered by analysts to have the strongest balance sheet in the sector, set about reshaping the company ahead of many peers.

Once Tuesday’s deal is complete, its divestments will total at least $7.7 billion since 2013, including Australian coal assets such as stakes in the Bengalla, Clermont and Mount Pleasant mines.

Yancoal said the deal would create significant value for its shareholders.

“Post transaction, Yancoal will be the largest pure-play coal producer in Australia, with the ability to realize ongoing value from its combined low operating cost portfolio,” Yancoal Chief Executive Officer Reinhold Schmidt said in a statement.

The sale to Sydney-listed Yancoal, which is ultimately controlled by Shandong Province’s State-owned Assets Supervision and Administration Commission, could meet political resistance in Australia where the government has been blocking large asset sales to Chinese interests.

It is subject to clearance from the Australian Federal government, the government of New South Wales state, and Chinese regulatory agencies, Rio added.

Rio will convene an extraordinary meeting in the second quarter for shareholders to vote on the transaction.

The Sydney and London dual-listed firm said it had held extensive talks with potential suitors, but found Yancoal provided “the only offer that represented compelling value for the assets”.

In a note, analysts at Investec Bank said: “Rio’s discipline in holding out for some years has prevailed with it getting a good price.”

Last year coal markets, especially for coking coal used in steel-making, saw some of the steepest price rises on record after Chinese authorities capped domestic coal mining.

Prices have eased, although analysts do not rule out further strength depending on China’s actions.

Last year’s market made agreeing coal sales difficult and a long-awaited deal for miner Anglo American to sell its Australian coal assets to a consortium headed by private equity group Apollo Global Management faltered as the parties could not agree a price.

Editing by Christian Schmollinger and David Evans