Yancoal seeks $2.5bn from investors to pay for Rio’s Aussie coal mines

Hunter Valley. (Image courtesy of Rio Tinto | Flickr.)

China-backed Yancoal Australia (ASX: YAL) said Wednesday it will launch a fundraiser to fetch $2.5 billion it needs to buy Rio Tinto’s (LON, ASX:RIO) Coal & Allied division, which it scored late June after a three-week bidding war with Glencore.

The figure is lower than the $2.69 billion originally agreed, thanks to Glencore’s (LON:GLEN) intervention last week. Despite officially losing its battle with Yancoal, the Swiss miner and commodities trader stroke a deal for almost half the coal assets Yanzhou Coal Mining’s subsidiary is buying from Rio.

Now debt-laden Yancoal needs to actually come up the arranged amount and, as part of its plans to do so, it said it would place shares with strategic investors to raise $150 million, and use cash and loans to complete funding its “strategically compelling” purchase.

China’s Yanzhou Coal Mining, Yancoal’s majority owner, will subscribe to $1 billion worth of the rights offer, while Glencore will account for $300 million. 

The company, which also agreed last week to enter into a joint venture with Glencore for them to operate Rio’s former mines, said its takeover remains subject to approval by Yanzhou’s shareholders, though it expects to complete the deal within the third quarter of the year.

Yanzhou will subscribe to $1 billion worth of the rights offer, while Glencore will account for $300 million, Yancoal said.

“The continued expansion of Yancoal via the acquisition of Coal & Allied provides new investment opportunities for existing shareholders and third parties looking to support the growth of the Australian resources sector,” Yancoal chairman Li Xiyong said in the statement.

JPMorgan and Morgan Stanley are joint global co-ordinators of the raising.

Coal asset sales stalled last year when prices for the commodity climbed up to almost five-year highs and companies raised their expectations on bids for their assets. But there’s movement in the market once again.

Mitsubishi announced that is considering selling a stake in Clermont coal mine in Australia. If sold, the company would be left with a stake in just one thermal coal mine.

Other Japanese trading houses have also been cutting or freezing investments in thermal coal.

Mitsui & Co said last month it would invest mainly in iron ore, LNG and oil and had no plans to consider acquiring or developing new thermal coal mines. The announcement followed last year’s decision to cut its exposure to coal by a third within three years.