Rio Tinto sells its majority share in Australian coal mine

October 29, 2013

Glencore Xstrata and Japan’s Sumitomo Corp. will each acquire a 25.05 percent share of Australia’s third-largest thermal coal mine as Rio Tinto turns its focus to larger, core operations.

Rio Tinto offered to sell its 50.1 percent stake in the Clermont Mine in Queensland earlier this year and will colled $1.015 billion on the sale, Reuters reported.

The sale helps advance Rio Tinto's plan to sell down unwanted assets, as the world's third-largest miner pares debts of $22 billion, cuts costs and tries to meet shareholder demands for better returns.

Rio Tinto said it had announced or completed almost $3 billion 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 unit and aluminium.

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.

The deal will be financed by debt for around half the purchase price, meaning Glencore and partner Sumitomo will put in a little more than $250 million in cash each.

Clermont, a large-scale openpit mine, is also relatively low cost, thanks to a low strip ratio - meaning less waste has to be removed to expose ore for mining - and the ability to sell 90 percent of coal without washing.

After this cash deal, Glencore and Sumitomo will each own half of the stake through GS Coal Pty, meaning an economic interest of 25.05 percent each. Glencore will assume Rio's role in managing the mine and marketing production.

Glencore and Rio have separately been discussing a possible combination of their coal assets in the Hunter Valley region of New South Wales, to help cut costs and shore up margins with thermal coal prices holding close to four-year lows.

But sources familiar with the matter have said those talks were progressing slowly.

Glencore is the top thermal coal exporter in Australia, while Rio Tinto is the largest thermal coal producer in Australia's Hunter Valley.


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