China coal deal puts Canberra in geopolitical bind

Rio Tinto

20/04/2026 02:49

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

By Antony Currie

Hong Kong, April 20 (Reuters Breakingviews) - Australian coal miner Yancoal YAL.AX, 3668.HK is a contender for best-timed deal of the year. The $6.6 billion excavator has agreed to to buy 80% of neighbouring coal pit, Kestrel, for up to $2.4 billion from a consortium led by private-equity firm EMR Capital. The buyer’s majority shareholder is Yankuang Energy 600188.SS, a Chinese state-backed enterprise, raising the prospect of Canberra blocking the takeover. But the supply-chain weaknesses Down Under exposed by the Iran war may change the political calculation.

The acquisition is otherwise a regular domestic M&A transaction. Sydney- and Hong Kong-listed Yancoal would add Australia’s largest underground mine to its portfolio. Boss Sharif Burra is being coy about cost cuts, but he may find some of the savings that BHP BHP.AX executives were salivating over when trying to buy Anglo American AAL.L, which has an Australian coal unit.

As with Whitehaven Coal’s WHC.AX 2024 purchase of some BHP mines, Yancoal would increase its revenue from coal used for steelmaking, which banks are more willing to finance that than the thermal variety.

And the takeover includes a wrinkle found in just about every recent Australian coal mining deal: Yancoal will pay $1.85 billion up front, with the remainder tied to annual payments if metallurgical coal averages at least $225 a ton a year – it’s currently trading around $230 a ton. That’s schmuck insurance for the seller and a windfall tax on the buyer, a concept companies usually rail against when governments try to levy one.

Yankuang’s 62% stake complicates matters. Canberra has become more wary this decade of state-backed buyers taking a larger interest in the country's resource sector. It may well have decided to block a cack-handed attempt by Yancoal’s Chinese parent to buy the remaining shares four years ago had the subsidiary's independent board members not sent it packing. Kestrel would indirectly give China, the world’s largest steelmaker, access to one of the largest mines producing a key ingredient for the metal.

The conflict in the Middle East, though, has left Australia scrambling. The country relies on the region for a good chunk of its oil, almost all of which it imports, and its fertiliser. Prime Minister Anthony Albanese has already travelled to Singapore, Malaysia and Brunei to secure supplies, using Australia’s natural gas and food exports as bargaining chips. Given China’s ample oil stockpiles, there’s no reason corporate finance can’t be used as one, too.

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         CONTEXT NEWS

      Sydney- and Hong Kong-listed Yancoal on April 14 said it has agreed to buy an 80% stake in Kestrel coal mine from a private equity-led consortium for up to $2.4 billion. If approved, the buyer would pay $1.85 billion when the deal closes and up to $550 million more over five years if the price of metallurgical coal hits and stays above $225 a ton for an agreed period; at present the coal price is $232 a ton.

The deal requires approval from Australia's Foreign Investment Review Board as Yancoal is 62%-owned by China's state-backed Yankuang Energy. A further 8% is held by Cinda International, a state-owned investment firm.

EMR Capital led the acquisition of Kestrel from Rio Tinto in 2018 for $2.25 billion. Its partners were Mitsui Resources and Indonesia's Adaro Energy. The Japanese firm is retaining its 20% stake.

Metallurgical coal has not returned to Ukraine war high https://www.reuters.com/graphics/BRV-BRV/klpylbyzmvg/chart.png

Yancoal shares are close to a multi-year high https://www.reuters.com/graphics/BRV-BRV/gdvzablqzpw/chart.png

(Editing by Una Galani; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on CURRIE/antony.currie@thomsonreuters.com))