China's Yancoal grabs Rio Tinto’s coal mines in $2.45bn deal

Yancoal Australia (ASX:YAL), a subsidiary of China’s Yanzhou Coal Mining, has agreed to buy Rio Tinto’s (ASX, LON:RIO) thermal coal assets in Australia’s Hunter Valley for as much as $2.45 billion, as the world’s second-largest miner speeds up plans to move away from the fuel.

The deal involves an initial payment of $1.95 billion for Rio’s Coal & Allied Industries Ltd., followed by further annual payments, taking the total price up to $2.45 billion. Yancoal also has an option to pay a single cash payment of $2.35 billion, Rio said.

If it goes through, the deal would make of Yancoal Australia’s largest pure-play coal producer.

"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," chief executive Jean-Sebastien Jacques said in the statement.

The Coal & Allied unit includes Rio Tinto’s interests in the Hunter Valley Operations mine, an 80% interest in the Mount Thorley mine, a 55.6% stake in the Warkworth mine, and a 36.5% share in a coal export terminal at Newcastle.

The deal, subject to Australian government approval, would make of Yancoal Australia’s largest pure-play coal producer, according to the company.

But the transactions may hit a snag as Yancoal is a China-owned firm, controlled by Shandong Province's State-owned Assets Supervision and Administration Commission. This could meet political resistance in Australia where the government has been blocking large asset sales to Chinese interests, Reuters reports.

However, Yancoal is already established in Australia’s coal sector as the owner or operator of seven operations in Queensland and NSW.

Since 2013, when Rio Tinto began talking measures to weather an emerging slump in commodities prices, the group has divested at least $7.7 billion, including last year’s sale of the Mount Pleasant project and its 40% stake in the Bengalla venture to New Hope Corp. for $617 million.

The companies expect today’s deal, which is also subject to the approval of Chinese regulatory agencies, to be completed by the third quarter of this year.