Rio Tinto sells Bengalla thermal coal mine: Update
Bengalla produced 8.25mn t of thermal coal in the 2014-15 fiscal year to 30 June and is part of Rio Tinto's Hunter valley coal operations, which also include the Hunter Valley Operations (HVO) and Mount Thorley Warkworth mines. Rio Tinto has signalled for more than two years that it wants to reduce its exposure to thermal coal and opened a data room for the sale earlier this year.
New Hope has been looking for an acquisition for the past three years to make best use of its A$1.1bn ($770mn) in cash on hand. Bengalla gives new Hope growth options, with approvals in place to expand the mine to 12mn t/yr. This could replace the firm's plans to expand its New Acland thermal coal mine in Queensland to 7.5mn t/yr from 4.8mn t/yr. The New Acland expansion has been caught up in the approvals process for several years, amid significant community opposition to the expansion.
But New Hope's managing director Shane Stephan said today the company is maintaining its commitment to the New Acland expansion and has retained the financial capacity to pursue it.
The sale of Bengalla leaves Rio Tinto wanting to sell HVO and Mount Thorley Warkworth, which produced a combined 4.8mn t of semi-soft coking coal and 21mn t of thermal coal in 2014, either together or as separate entities.
Switzerland-based trading and mining firm Glencore had been seen as the frontrunner to acquire all of Rio Tinto's Hunter Valley coal mining assets because of the synergies available with its Hunter valley coal mining operations. It may still be interested in Rio Tinto's remaining Hunter valley mines, as Bengalla is smaller and sits to the north of the other two operations. Glencore is unlikely to pay anything equivalent to the $1.5bn value that the New Hope acquisition implies for Bengalla, particularly given its high global debt levels. Disagreement over price has been the main barrier to Glencore acquiring Rio's Hunter Valley assets during the past two years.
Former Glencore executive Mick Davies is also keen on the Rio Tinto assets for his X2 resources firm, as is Indonesian conglomerate Salim Group and private equity firm KKR.
Rio Tinto will rework its Coal & Allied joint venture as part of the sales process. Japanese firm Mitsubishi Development will swap its 20pc interest in Coal & Allied, which is the vehicle through which Rio Tinto owns its stake in Bengalla, for a direct 32.4pc stake in HVO. This means that Rio Tinto is not only selling its stake in Bengalla it is also diluting its stake in HVO.
The deal is subject to none of the joint-venture partners in Bengalla using their pre-emptive sale rights. Bengalla is operated by Rio Tinto, with Australian conglomerate Wesfarmers holding 40pc and Taipower and Japanese trading house Mitsui each owning 10pc.