Rio Tinto sale to Yancoal resets mood for Australian coal mine deals

National Healthcare

25/01/2017 08:29

* Coal price retreat to spur deals 
    * $10 billion in assets up for sale 
    * Anglo American, Wesfarmers, Peabody mines on block 
    * Private equity, Asians seen as buyers 
 
    By James Regan and Jamie Freed 
    SYDNEY, Jan 25 (Reuters) - Chinese-owned Yancoal's  YAL.AX  
$2.45 billion purchase of the Coal & Allied division of Rio 
Tinto  RIO.AX  is setting the stage for more big-ticket coal 
mining acquisitions in Australia, where more than $10 billion in 
assets are waiting to be sold. 
    Deals stalled last year when coal prices rocketed to nearly 
five-year highs and miners raised their expectations on bids for 
their assets, but with coal prices in retreat, deals are more 
likely to get done, merger and acquisition advisers said.  
    Asian buyers are likely to be in the forefront, they said. 
    "Now that coal prices are no longer going up, both buyers 
and sellers are taking more realistic views on valuations," said 
K&L Gates lawyer Robert Milbourne, who specialises in mining. 
    Desperate to cut debt, Anglo American  AAL.L  put its prized 
Grosvenor and Moranbah mines, which produce coking coal used in 
steel-making, up for sale about a year ago. But after coking 
coal prices tripled, it spurned an offer worth more than $2 
billion from a team led by private equity firm Apollo Global 
Management  APO.N .  urn:newsml:reuters.com:*:nL8N1D96RO       
    "They decided (Moranbah and Grosvenor) were too good to sell 
because of the higher coking coal price...The balance sheet 
fixed itself," said a Sydney-based investment banker with coal 
expertise. 
    With Anglo holding on to those mines, the biggest deal 
pending is Australian conglomerate Wesfarmers'  WES.AX  sale of 
its Curragh mine and its 40 percent interest in the Bengalla 
mine, which industry sources say could fetch more than $1.5 
billion all together.  urn:newsml:reuters.com:*:nL4N1DH05E 
    Anglo American still has other coal mines it wants to sell. 
Peabody Energy, Vale  VALE5.SA  and possibly BHP Billiton 
 BHP.AX  BLT.L  could also look to unload thermal coal mines.  
    Cashed up private equity players, like Apollo, Denham-backed 
Pembroke Resources and EMR Capital, are hunting for assets, and 
as the Rio deal showed, there is still strong appetite for coal 
mines from Asian buyers. 
     
    BIGGEST POST-BOOM DEAL 
    Prior to Yancoal agreeing to pay up to $2.5 billion for Rio 
Tinto's suite of mostly thermal coal assets in Australia's 
Hunter Valley, the biggest post-boom purchase was $606 million 
-- paid by New Hope Coal  NHC.AX  in 2015 for Rio Tinto's stake 
in its Bengalla mine. 
    Yancoal may also buy Mitsubishi Corp's  8058.T  32 percent 
stake in the Hunter Valley Operations sold by Rio Tinto. 
    "We had quite a few small transactions go through last 
year," said the investment banker. "We will see some bigger ones 
this year. The increase in the coal price last year slowed 
things down."  
    Coking coal prices have contracted by a third to less than 
$200 a tonne, while thermal coal  0#GCLNWCPFBAVc  has come back 
from a peak of $100 a tonne in November to trade at $84. 
    In a sign that sellers want to get deals done, Rio Tinto 
gave Yancoal flexibility on paying $2.45 billion in one go, or 
$1.95 billion up front followed by $500 million split in annual 
installments over five years. 
    "The structure of Rio's sale suggests they were more willing 
to deal," UBS mining analyst Glyn Lawcock said. "They are 
prepared to say you can pay us the last $500 million over five 
years. That's not very common." 
    The price for Coal & Allied underscores China's willingness 
to pay up for high quality coal assets abroad as its domestic 
industry winds back. UBS valued the assets at $1.8 billion, 
while RBC valued them at $2.2 billion at current coal prices. 
    Rio held out for a strong price throughout the coal market 
slump over the past few years, rebuffing approaches from 
Glencore Plc  GLEN.L  to merge its assets with Coal & Allied in 
mid-2014.  
    After that, Glencore sought an outright acquisition that 
also included Rio Tinto's Kestrel and Hail Creek mines in 
neighbouring Queensland state. Both attempts failed. 
     
($1 = 1.3278 Australian dollars) 
 
 (Reporting by James Regan and Jamie Freed; Editing by Sonali 
Paul) 
 ((jim.regan@thomsonreuters.com; +612 9373-1814; Reuters 
Messaging: jim.regan.reuters.com@reuters.net)) 
 
Keywords: RIO TINTO M&A/YANCOAL