With the acquisition, Yancoal will now own some of the largest single coal mines in Australia, with a suite of mines in NSW and Queensland. It is yet to clarify how it will fund the purchase, although a share issue is expected to be launched in the June quarter.
The Chinese-controlled company will more than double in size, producing more than 42 million tonnes of coal in Australia.
News of the sale triggered a surge in Rio shares in London trading overnight, rallyig by more than 3 per cent.
Rio is to receive an immediate $US1.95 ($2.6) billion, in cash, with the remaining $US500 ($660) million paid in annual $US100 ($132) million instalments.
The sale of Rio’s Coal & Allied unit represents the culmination of an extensive assessment of all strategic options for these assets, the Anglo-Australian miner said, and it comes after “a comprehensive market testing and price discovery process” along with negotiations with a number of potential buyers.
The mines being sold to Yancoal produced 25.9 million tonnes of thermal and semi-soft coking coal in 2016 of which Rio’s share was 17.1 million tonnes. The net assets subject to this sale agreement had earnings before tax of $US102 million in the 2015, and a gross asset value attributable to them of $US1.895 billion as at June 2016.
Yancoal Australia is 78 per cent owned by Yanzhou Coal Mining Co of Hong Kong, which is in turn controlled by an arm of the Chinese government. Yancoal sells around 25 million tonnes of coal annually produced at its Australian mines.
The deal is subject to state and federal government scrutiny, Rio said.
Following settlement, Yancoal is to a pay royalties of $US2 a tonne as long as the thermal coal price is over $US75 a tonne.
Yancoal’s offshore parent said it will pump $US1 billion of additional equity into its Australian arm while also looking for other investors to take up shares in any fund raising.