It's official: Rio Tinto has sold its Australian coal assets for $2.69bn

 
Courtney Goldsmith
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Yancoal beat Glencore in a bidding war for the coal assets (Source: Getty)

Rio Tinto has completed the $2.69bn (£2.08bn) sale of its Australian thermal coal assets to China-backed Yancoal.

Yancoal, which beat rival Glencore in a bidding war for the assets, will take over management of the Coal & Allied Industries subsidiary from today. The unit is based in the Hunter Valley region of New South Wales.

Rio's shareholders voted to approve the sale of the wholly owned subsidiary in June.

The mining giant has revised down its guidance for thermal coal production in 2017 due to the sale. Rio now expects between 13m tonnes and 14m tonnes after previously estimating 17m tonnes to 18m tonnes.

Rio in a comfortable position

The $2.69bn deal comprises $2.45bn in cash paid today and a further $240m of unconditional guaranteed royalty payments.

The first royalty payment of $10m was made today and an additional $100m will be received by the end of the year. A further $90m is expected before the end of 2018.

Under the terms of the agreement, Rio may also receive an additional royalty linked to the coal price, capped at $410m.

Analysts at Investec said: "Tax on the sale is expected to be low, given carried forward losses, so this leaves Rio in the very comfortable position of wondering just what to do with the cash. In terms of the capital allocation framework, returning it to shareholders will be part of the consideration, particularly given expected low levels of forecast net debt by the year end."

In July, Glencore agreed a deal with Yancoal and Mitsubishi to buy a 49 per cent stake in coal mines in the Hunter Valley region for $1.1bn.

Read more: Glencore and Yancoal on the brink of a bidding war over Rio Tinto assets

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