Glencore has submitted a proposal to acquire Rio Tinto’s 100% interest in Coal & Allied Industries for $2.55bn cash.
Under the agreement, an initial cash of $2.05bn is payable upon completion, with the remaining $500m to be paid over five years.
The Glencore proposal will be funded from existing cash resources and committed facilities. The deal is subject only to regulatory conditions.
A unit of Mitsubishi Corporation has a right to sell its 32.4% stake in the Hunter Valley Operations joint venture (HVO JV).
Glencore has agreed to acquire Mitsubishi’s 32.4% stake in the HVO JV and 28.898% interest in the Warkworth joint venture for $920m cash, on condition of completion of Glencore’s acquisition of C&A from Rio Tinto, with $520m to be paid on completion and $100m on the first four years of completion.
There is no certainty that this deal will be completed. Glencore will only be bound only when a share purchase agreement (SPA) is concluded with Rio Tinto.
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When the deal is concluded, Glencore plans to reduce the impact of the purchase, through sale of assets worth $1.5bn, which includes exploring the sale of up to 50% of its stake in the C&A mines.
The C&A assets consists of majority joint venture interests in coal mines in the Hunter Valley region of New South Wales.
C&A owns 67.6% stake in HVO, an 80% interest in Mt Thorley, and 55.6% in Warkworth mines.
These mines produced a combined 25.9 million tonnes of thermal and semi-soft coking coal in 2016.
Furthermore, C&A owns a 36.5% interest in Port Waratah Coal Services, a coal export terminal at the Port of Newcastle.
C&A mines are located adjacent to Glencore’s several mines.
Following the acquisition, Glencore’s combined portfolio of mines in the Hunter Valley will have production capacity of 81 million tonnes of coal per annum.
Image: Coal drawn from the mines is expected to meet growing Asian demand. Photo: courtesy of Rio Tinto.