A potential bidding war is opening up between two mining heavyweights over the sale of Rio Tinto's Coal & Allied unit.
China's Yancoal was thought to have the $2.45bn (£1.93bn) deal for the large New South Wales assets in the bag, but Glencore announced a counter bid for $2.55bn on Friday evening.
Rio Tinto today said it will respond to the proposal in "due course". Although the miner is able to negotiate with other parties, Rio Tinto must give Yancoal a chance to make a counter offer if it accepts Glencore's bid, according to the agreement.
Glencore's deal is fully financed and $100m higher, but the Chinese state-controlled Yancoal has already been given the go-ahead from Chinese regulatory agencies as well as the Australian Foreign Investment Review Board and South Korea's Fair Trade Commission. Any outstanding approvals are expected to be received by the end of June, Yancaol said in a statement yesterday.
If Glencore's deal succeeds, the firm will also buy minority stakes in Hunter Valley coal operations from Mitsubishi for $920m in cash, the firm said.
Analysts told Reuters that Glencore, which has been interested in the assets for some time, is likely to succeed with its bid. "We cannot see Rio refusing unless it feels it will hurt its cosy China relationships," said Hunter Hillcoat, analyst at Investec.
In January, Yancoal Australia Limited offered $2.45bn for the assets, including an initial $1.95bn cash payment and $500m in annual instalments following completion. Glencore offered $2.05bn upfront and $0.5bn in instalments over five years. It will automatically expire on 26 June if a binding sales agreement has not been reached.
The deal would bring Glencore's total Hunter Valley production to 81m tonnes per year of high energy coal.
Tyler Broda, analyst at RBC Europe Limited, said Glencore's offer demonstrated its robust balance sheet.