Glencore would pay $2.68bn in cash plus a coal-price linked royalty for the Coal & Allied unit in New South Wales, the company said in a statement on Friday. The offer is fully funded and at least $225mn higher than Yanzhou Coal Mining Co’s proposal.
The move heightens pressure on Rio Tinto in what’s become a last-minute drive by Glencore to win the assets, situated near its own operations in the Hunter Valley. Rio earlier last week urged shareholders to vote for the $2.45bn proposal by Yancoal, citing the likelihood of regulatory approval and funding certainty.
“Glencore certainly aren’t making life easy for Rio,” said Paul Gait, an analyst at Sanford C Bernstein Ltd in London. “Their basic premise in this is that whatever Yancoal can pay, Glencore can pay more because they can extract more value from the assets.”
Glencore, run by former coal trader Ivan Glasenberg, has consistently said the fuel is essential to the needs of the developing world in the long term, thanks to growing demand in Asia. Its pursuit of the Rio assets dates to 2014, when the mining giants considered merging their coal businesses.
While Glencore is the biggest coal miner in the Hunter Valley, the pits face depletion, making Rio’s mines an attractive prospect.
In the new bid, Glencore promised to pay a $225mn deposit, which would be forfeited if the deal doesn’t win regulatory approval. In another sweetener, Glencore would compensate Rio if the deal is delayed, either by paying $25mn a month or cash flow from the mines after September.
“Economically, the board will have no real rationale to reject this bid,” said Hunter Hillcoat, an analyst at Investec Plc in London. “But from the perspective of completion risk, they could still say they favour the Yancoal bid.”
Yancoal already has approval from regulators in China and Australia.
Glencore has antitrust approval from Japan and said any China antitrust concerns aren’t justified. Coal & Allied shipments into China only account for 1% of regular imports, according to the mining company.
The prize for Glencore is a potential $1bn of synergies through combining mine output and product marketing, RBC Capital Markets analysts including Paul Hissey wrote in a note dated June 20. Its Ravensworth, Mount Owen and Liddell operations lie adjacent to Rio’s three coal mines in the Hunter Valley, the region north of Sydney that supplies the world’s biggest coal export harbour at Newcastle.
Glencore has said that, if it wins, it would raise at least $1.5bn by selling or monetising assets. The company would prioritise coal assets and could sell a stake of as much as 50% in the mines it’s buying from Rio. Rio has until Monday evening to accept the latest offer, Glencore said. Shareholders are expected to vote on the deal this week.
Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.
