Rio Tinto backs Yancoal's bid for its Australian coal assets in a blow to Glencore

Courtney Goldsmith
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This photo taken on June 23, 2012 shows
Yancoal's first offer for the coal assets was made back in January (Source: Getty)

A bidding war over Rio Tinto's Australian coal assets is heating up as the mining giant backed a fresh offer from China's Yancoal.

Rio's board today recommended that shareholders vote in favour of Yancoal's bid for its Coal & Allied unit after considering revised offers from Glencore and the Australia-listed Yancoal, received on 23 June and 25 June, respectively.

"The board has considered both of the latest offers and is recommending Yancoal's improved offer to its shareholders based on greater transaction certainty and higher net present value," Rio said in a statement.

Yancoal's revised offer included a total consideration of $2.69bn (£2.11bn) as well as $240m in royalty payments and increased break fee of $225m. All regulatory approvals for Yancoal's bid have already been received or waived, meaning the deal could be complete during the third quarter of 2017.

Glencore increased its offer on Friday to nearly $2.68bn in addition to a coal price-linked royalty. It also said it would compensate Rio for the time it took to acquire all of the necessary approvals. A deal with Glencore is unlikely to be completed until the first half of 2018 at the earliest.

"The revised offer from Yancoal of $2.69bn offers compelling value to our shareholders for our Australian thermal coal assets," said Rio's chief executive Jean-Sebastien Jacques.

"This sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal's strong proposal."

Rio shareholders will vote on the deal later this week.

The FTSE 100 mining giant has been working to optimise its portfolio by boosting high-value growth projects and dropping assets like its coal mining unit in New South Wales. The deal also includes a major stake in the Port Waratah coal-loading facility where most of the country's thermal coal is shipped to overseas markets.

Yancoal originally offered $2.45bn for the assets in January, and it has been Rio's preferred bidder throughout the process. Glencore's fully-financed deal looked good to analysts, but today Yancoal confirmed it has $2.1bn backing from Yankuang, Yancoal's parent company.

"Yancoal continues to provide Rio Tinto with the certainty of approvals and funding required to facilitate the efficient and timely sale of the Coal & Allied assets in support of Rio Tinto’s global strategic growth," Yancoal chairman Xiyong Li said in a statement.

Glencore declined to comment.

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