Glencore (LON: GLEN) is expected to dismiss a $3.60 per share offer for its minority stake in Yancoal Australia (ASX: YAL) as it considers the Chinese majority owner’s bid for the coal producer offensively low.
Yankuang Energy Group made an offer last week to acquire the 37.7% it does not already own in Australia’s largest listed coal miner at a 16% discount to the current market price for Yancoal shares.
Sources with knowledge of the matter told Reuters that Glencore considered the $1.8 billion deal “unacceptable” because it “significantly undervalues” the stock.
Yankuang is attempting to get close to the 90% ownership threshold which, according to Australian rules, would allow it to acquire all the small number of shares owned by two other Chinese state-owned retail and institutional investors and take Yancoal private.
The Swiss miner and commodities trader had reportedly tried to convince Yankuang to buy its part in Yancoal on multiple occasions over the past five years, which would explain why the Chinese company presented such low bid.
Glencore has never considered Yancoal a key investment. It is said to have reluctantly agreed to it in 2017, as a condition of a deal that gave it a stake in Yancoal’s Hunter Valley Operations mine in New South Wales.
The deal would also favour Australia’s new prime minister, Anthony Albanese, whose government aims to repair ties with Beijing.
China is the world’s top importer of the polluting fuel, and Australia was its second-biggest supplier, behind Indonesia, up until the middle of 2020.
A political dispute between China and Australia over a series of issues, including Canberra’s call for an international investigation into the origins of the coronavirus pandemic, led to Beijing telling traders and utilities to stop buying Australian coal.
Coal supply is currently extremely tight, partly because Russia’s ongoing war in Ukraine keeps global demand and prices elevated. Flooding and labour issues at mines in Australia earlier this year are also weighing in.
Yancoal Australia has operations in Western Australia, New South Wales and Queensland.
Coal prices are at record highs with Newcastle index thermal coal fetching $370 per tonne on the spot market and coking coal trading at over $500 per tonne.
(With files from Reuters)