Rio Tino, the British-American multinational coal and mining company, recently sold most of its coal assets to China-backed Yancoa, closing the deal for around US$2.45 billion. Rio Tino is the world’s second-largest miner.
As part of the deal signed on Tuesday, ‘Coal & Allied’, which handles many mines in the state of New South Wales, will be sold to ‘Yancoal’ Australia for US$2.35 billion (US$2.45 billion) that needs to be paid up-front or for.
The second option for multinational company is that they can either pay US$1.95 billion as an advance payment, followed by the remaining US$500 million to be paid over a period five years.
Yancoal is one of China’s biggest conglomerates in terms of market capitalization. They even run several mines in Australia. Yanzhou Coal is its major shareholder.
Rio Tino’s Chief Executive Mr Jean-Sebastien Jacques said, “This sale delivers outstanding value for our shareholders and is consistent with our strategy of reshaping our portfolio to ensure the most effective use of capital. Our world-class assets, strong balance sheet and relentless focus on cash will ensure that we deliver superior returns for our shareholders.”
The shares of Rio were up by 2.30% to Aus$66.25 during initial trading on Wednesday in Sydney. On the other hand, shares of Yancoal raised 4.17% to Aus$0.50.
The agreement is yet to be approved by the Chinese, Australian and New South Wales government. It is estimated to be wrapped up by the 2nd half of the year.
Since early 2013, Rio Tinto has settled more than US$ 7.7 billion in divestments.
Amidst all the uncertainties and the overflowing supply in the market, the miners have embarked on cost cutting and have tightened the grip on capital expenditure
Rio officials stated that their underlying profits fell 47% from last year to US$1.56 billion during a 6-month period ending in June-2016.
It was estimated that the results were the lowest since the year 2004.