CA-Black-Transp

Glencore Delivers Proposal to Buy Rio Tinto’s Coal & Allied Industries


Glencore has submitted a proposal to acquire Rio Tinto's 100% interest in Coal & Allied Industries Ltd. (C&A) for $2.55 billion in cash plus a coal price linked royalty, with the cash comprising $2.05 billion in cash payable on completion, and $500 million in aggregate deferred cash payments, payable as annual instalments of $100 million over five years following completion.

The Glencore proposal will be funded from existing cash resources and committed facilities and is subject only to regulatory conditions.

A subsidiary of Mitsubishi Corp. has a tag-along right to sell its 32.4% interest in the Hunter Valley Operations joint venture. Glencore has agreed to purchase Mitsubishi's 32.4% interest in the joint venture and 28.898% interest in the Warkworth joint venture for $920 million cash conditional on completion of Glencore's acquisition of C&A from Rio Tinto, with $520 million being payable on completion and $100 million payable on the first four anniversaries of completion.

If a transaction is concluded, Glencore intends to mitigate its overall financial commitment via a sale/monetization of assets of no less than $1.5 billion, including exploring the option of selling down up to 50% of its interest in the C&A mines.

The C&A assets comprise majority joint venture interests in large-scale long-life low-cost coal mines in the Hunter Valley region of New South Wales. The Hunter Valley Operations are owned 67.6% by C&A and 32.4% by Mitsubishi; C&A owns 80% of Mount Thorley; and Warkworth is owned 55.6% by C&A and 28.898% by Mitsubishi. Together, they all produced 25.9 metric tons in 2016 of premium quality export thermal coal and semi-soft coking coal. C&A also has substantial regional landholdings and owns a 36.5% interest in Port Waratah Coal Services, a coal export terminal located at the Port of Newcastle, the world's largest coal export facility.

The C&A mines lie adjacent to numerous existing Glencore mines in the heart of the Hunter Valley, including the Ravensworth North and Bulga mines.

“The addition of the C&A assets to our existing portfolio in the Hunter Valley would unlock large scale mining and operating synergies,” the Glencore statement said. “Glencore’s combined portfolio of mines in the Hunter Valley would have a production capacity of 81 million metric tons per year of high energy coal that feeds increasing Asian demand for high efficiency, low emission coal.”

On January 24, Rio Tinto announced the terms of the potential sale of C&A to Yancoal Australia Ltd. The terms of the deal allow Rio Tinto to engage in negotiations or discussions with a third party if the board feels the competing proposal is or is likely to become a superior proposal. To constitute a superior proposal, a competing proposal must propose the acquisition of 100% of C&A for cash consideration and royalty payments together having a net present value exceeding the total value of the consideration payable under the Yancoal Deal by at least $100 million and be reasonably capable of being completed on a timely basis and be more favorable to Rio Tinto shareholders.

Glencore believes its proposal satisfies that criteria.

Rio Tinto said it will give the proposal appropriate consideration and respond in due course.

Rio Tinto must provide Yancoal with the opportunity to present a counter offer, if necessary.

Glencore’s proposal will automatically expire by June 26.