RIO Tinto has agreed to sell its majority stake in Australia’s third-largest thermal coal mine to Glencore Xstrata and Japan’s Sumitomo Corporation.
Rio put its 50.1 per cent stake in the Clermont mine in Queensland on the block earlier this year, but appetite had been considered by industry advisers to be weak, given a poor outlook for coal prices and high costs in Australia.
The sale – for $1.015bn in cash - will be a welcome boost for Rio’s plan to sell down unwanted assets, as the world’s third-largest miner pares debts of $22bn, cuts costs and tries to meet shareholder demands for better returns.
Rio said it had announced or completed almost $3bn of divestments this year, but its larger planned sales – including a stake in Canada’s largest iron ore producer, Iron Ore Company of Canada (IOC) – have struggled. The miner has already scrapped the sale of its diamond and aluminium units.
“It’s not a bad price (for Rio), the market will be reasonably pleased,” said analyst Des Kilalea at RBC Capital Markets. “But the one everyone is looking for is IOC.”
Glencore, the largest trader of seaborne thermal coal and a leading thermal coal producer, has slashed costs in its coal unit as it cuts back following the takeover of miner Xstrata.
But it has also said it can benefit from increased blending and trading opportunities – as well as from a rise in thermal coal prices that it says are at unsustainable lows.
“Glencore is contrarian, this is the sort of deal that they do – buying up assets that no one else appears to want,” one senior industry source said. “This is not huge money for them, and it is about controlling a bigger piece of production.”
The deal will be financed by debt for around half the purchase price, meaning Glencore and partner Sumitomo will put in only just over $250m in cash each.
Clermont, a large-scale open pit mine, is also relatively low cost, thanks to a low strip ratio – meaning less waste has to be removed to expose ore for mining.