Rio Tinto agrees to sell its Australian Coal & Allied unit to China's Yancoal for $2.45bn

 
Courtney Goldsmith
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The global miner said the sale will benefit shareholders
The global miner said the sale will benefit shareholders (Source: Getty)

Rio Tinto today agreed to sell its Australian Coal & Allied Industries subsidiary to China's Yancoal Australia for up to $2.45bn (£1.96bn).

Rio's London-listed shares rose more than four per cent in early trading after it announced it was offloading its thermal coal business in New South Wales.

“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 chief executive Jean-Sebastien Jacques said.

"Our world-class assets, strong balance sheet and relentless focus on cash will ensure we deliver superior returns for our shareholders," he added.

This divestment is part of Rio's drive to focus on more profitable commodities like iron ore and copper mining. The UK-based company has announced or completed at least $7.7bn worth of divestments since 2013.

After assessing several potential acquirers, Rio said in a statement: "Yancoal Australia provided the only offer that represented compelling value for the assets."

The deal comprises an initial $1.95bn cash payment and $500m in aggregate deferred cash payments, payable as annual instalments of $100m over five years following completion.

Read more: Rio and Mitsubishi offer £950m to buy out Coal & Allied

The transaction, which is subject to conditions including approvals from the Australian federal government, Chinese regulatory agencies and the New South Wales state government, is expected to be complete in the second half of 2017.

Rio could meet political resistance in Australia, where the government has blocked large asset sales to Chinese interests. Although Yancoal is listed in Sydney, it is controlled by Shandong Province's State-owned Assets Supervision and Administration Commission.

Rio shareholders will meet in the second quarter to vote on the transaction.

"We see this as a very good deal for Rio," Tyler Broda, an analyst at RBC Insight, said.

"Assuming the deal closes, this would account for around 75p in value gained per Rio share."

Rio stepped up production of iron ore in 2016 as commodity prices started recovering. In 2017, the company expects to ship 330m to 340m tonnes of iron ore, its biggest earner.

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