Yancoal Australia will become the largest coal miner in Australia with its $2.5 billion acquisition of Rio Tinto’s coal mines in New South Wales.

Yancoal Australia is an arm of the Chinese government. The Syndey Morning Herald reported that Rio Tinto has finally managed to offload its remaining coal interests in NSW but that it is expected to take much of 2017 for the deal to be settled.

With the acquisition, Yancoal will now be the largest single coal miner in Australia, since it already owns 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 Mt (46 million st) of coal in Australia.

The sale of Coal & Allied represents the culmination of an extensive assessment of all strategic options, Rio Tinto said.

Rio said it will raise $US2.45 billion ($3.3 billion) from the sale of its Coal and Allied unit to Yancoal, while it will also be entitled to ongoing royalty payments from Yancoal.

The sale follows the $US600 million deal reached a little more than a year ago with New Hope Collieries for the sale of Rio Tinto's stake in the Bengalla coal mine, which is also in NSW.

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.

Rio chief executive Jean-Sébastien Jacques said the sale "delivers outstanding value for our shareholders."

"We are confident that Coal & Allied will continue to contribute to the NSW economy and the communities of the Hunter Valley under a new owner," he said.

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.

"Yancoal Australia provided the only offer that represented compelling value for the assets," it said.

With the sale, Rio said it has either announced or completed $US7.7 billion of asset sales since 2013, including the sale of its share of the Clermont coal mine, the Bengalla coal mine and the Mount Pleasant coal project.

The mines being sold to Yancoal produced 25.9 Mt (28.5 million st) of thermal and semi-soft coking coal in 2016 of which Rio Tinto’s share was 17.1 Mt (18.8 million st).

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.