Yancoal fresh loss casts doubts on planned acquisition of Rio’s mines

Yancoal Australia (ASX:YAL), the subsidiary of China’s Yanzhou Coal Mining that is trying to buy Rio Tinto’s thermal coal assets in Australia’s Hunter Valley, has posted another annual loss this week, reporting net debt of almost $3.7 billion (A$4.8bn).

Industry observers believe Yancoal may hit a snag when trying to complete a $2bn equity issue to finance the acquisition of Rio’s mines.

The loss came despite thermal coal prices climbed 130% between February and October last year, and even though Yancoal received an $84.7 million income tax benefit.

Such tax credit helped a $311.8 million loss before tax trim down to $227.1 million.

The company, which has not reported a profit since the 2012 calendar year, is said to be waiting for approval from the Foreign Investment Review Board to formally launch a $2 billion equity issue that would allow it to finance the agreed purchase of Rio’s mines.

“Renewed global demand buoyed by improved coal prices will continue to strengthen Yancoal’s performance, as we pursue our future growth initiatives and strategic acquisitions in the best interest of our shareholders,” Yancoal chief executive Reinhold Schmidt said in a statement.

But according to The Australian, the company — which already operates nine mines employing about 2,000 people across the country — may hit a snag when trying to complete the raising:

“While most Chinese-backed acquisitions in Australia have been bankrolled out of China, Yancoal enters the Coal & Allied deal already carrying a heavy debt burden from prior acquisitions.

“Raising money for the deal from Australian and other investors will significantly increase the free float in Yancoal, which is thinly traded on the ASX, while also placating Chinese authorities that are cracking down on extending funding to big acquisitions outside China."

Should the deal fall apart, Yancoal will be able to walk away from it without a severe financial penalty, as Rio Tinto set the termination fee at just $23.5 million.