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China coal giant awaits Rio response to Glencore's rival offer

Jun 12 2017 08:02
Ben Sharples and Aibing Guo, Bloomberg
Glencore CEO Ivan Glasenberg.

Glencore CEO Ivan Glasenberg. (File, AFP) (AFP/MIKE CLARKE)

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GLENCORE PLC [JSE:GLN]

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Hong Kong - China’s Yanzhou Coal Mining is holding fire on a counter offer for Rio Tinto Group’s Australian coal assets as it waits to hear whether Glencore [JSE:GLN] has succeeded in trumping the deal it struck six months ago.

Glencore CEO Ivan Glasenberg has submitted a proposal to buy Rio’s Coal & Allied unit in New South Wales for at least $2.55bn, the Baar, Switzerland-based producer and trader said on Friday in a statement. Yanzhou’s Yancoal Australia unit in January offered $2.45bn for the business, including an initial $1.95bn cash payment and $500m in annual installments of $100m following completion.

“If Rio Tinto determines that the Glencore proposal is a superior proposal, Yancoal will have a right to match or better that proposal,” Yanzhou said in a Hong Kong exchange filing on Sunday. A further announcement will be made by the company “if it receives notification from Rio Tinto in relation to whether the Glencore proposal constitutes a superior proposal,” it said.

Rio’s board and management will give the Glencore proposal “appropriate consideration and respond in due course,” the company said in a statement on Friday. A Rio spokesperson on Monday declined to comment further.

Yanzhou has received outbound investment approval from China’s National Development and Reform Commission and the Ministry of Commerce as well as merger clearance from the nation’s Anti-Monopoly Bureau, it said. The company expects to receive any outstanding approvals by the end of June, according to the statement.

“The Glencore decision puts Rio Tinto in a very difficult situation,” said Helen Lau, a Hong Kong-based analyst with Argonaut Securities (Asia) Ltd. “It’s hard for the board to reject a higher offer, with better terms, but at the same time, it could be even more difficult to reject Yanzhou Coal, which has got almost all government clearance for the deal.”

If Glencore’s bid succeeds, it would also seek to buy Mitsubishi’s stakes in two coal ventures in the same area for $920m. Glencore would sell at least $1.5bn in assets to mitigate the cost, it said in Friday’s statement.

Hunter Valley

The Rio coal operations are adjacent to existing Glencore mines in Australia’s Hunter Valley, and would take Glencore’s production capacity there to 81 million metric tonnes a year. In 2014, Glencore and Rio considered merging their coal businesses.

“Yancoal has to wait and watch, but also has to carefully calculate whether a higher bid could justify the purchase to its own shareholders,” Lau said. “A good asset at the current price may not be a good one with another 10% premium. They have to make sure state investment is spent carefully and soundly on high-quality assets.”

Glencore’s bid for the coal assets comes just weeks after it expressed interest in a combination with grain trader Bunge as Glasenberg steps up expansion efforts following a painful commodities downturn in which it was forced to sell assets and cut costs.

The trader has already returned to deal making. In December, it teamed up with shareholder Qatar Investment Authority to buy almost 20% of Russian oil producer Rosneft PJSC. Glencore also agreed to a $960m Congo mining deal in February.

There is no certainty that any transaction will be concluded, Glencore said on Friday, adding that the deal would be funded from existing cash and committed facilities. Glencore will only be bound once a binding share purchase agreement is concluded with Rio Tinto. The proposal expires if a binding purchase agreement hasn’t been executed by June 26.

glencore  |  rio tinto  |  mining
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