Glencore Swoops In on Deal for Rio Tinto's Australian Coal Mines -- 2nd Update

By Razak Musah Baba and Michael Amon Features Dow Jones Newswires

Glencore PLC on Friday offered over $2.5 billion to buy a major piece of Rio Tinto PLC's Australian coal business, swooping in to disrupt an agreed-upon deal to sell the assets to a Chinese company.

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The offer demonstrates the renewed appetite for deal-making by Glencore Chief Executive Ivan Glasenberg almost two years after the Switzerland-based commodity giant experienced a downward spiral in share price. Since the company's stock recovered, Mr. Glasenberg has engineered the purchase of a stake in Russian state oil company PAO Rosneft, taken full control of a Congolese mine and made a nearly $10 billion offer to take over agricultural trader Bunge Ltd.

In Australia, Mr. Glasenberg is targeting Rio Tinto coal assets that the company has long coveted. And he is inserting himself into a deal already thought sealed by Rio Tinto, the British-Australian company Mr. Glasenberg launched talks to buy in 2014.

Glencore said Friday its offer was $100 million richer than the amount Rio Tinto agreed on in January with Yancoal Australia Ltd. for Coal & Allied Industries Ltd. Coal & Allied has significant operations in Australia's Hunter Valley, where Glencore also has a big coal business, offering the potential for two of the world's largest mining companies to marry operations and save money.

Glencore said its offer was already fully financed and could be considered by Rio Tinto under the terms of its deal with Yancoal, which hadn't obtained financing at the time the Rio deal was announced. Glencore's offer expires on June 26, a day before Rio Tinto has scheduled an extraordinary general meeting to vote on the deal with Yancoal.

Rio Tinto didn't respond to a request for comment. Yancoal couldn't be reached.

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The interest in Rio Tinto's coal assets comes amid a volatile period for the commodity, in this case, thermal coal, which is used to generate electricity.

Its price shot up in 2016 as demand from China heated up. The market has cooled this year, and analysts expect thermal-coal prices to remain subdued as countries switch to cleaner-burning fuels.

In all, the operations that Glencore wants to buy account for about 60% of Rio Tinto's coal production. The sale would rid Rio of nearly all of its thermal coal, though it still produces significant amounts of metallurgical coal, an ingredient in steel.

Glencore emphasized on Friday that it was conscious of the strain this deal could put on debt levels that Mr. Glasenberg scrambled to lower over the past two years.

If successful in buying Coal & Allied from Rio Tinto, Glencore said it would explore selling up to a 50% stake in the business and look to sell other coal assets so that its total financial commitment wouldn't exceed $1.5 billion.

If Rio accepts the offer, Glencore said it would also buy out Japanese trader Mitsubishi's interest in Australian joint ventures for $920 million.

Much of Coal & Allied's production goes to Japan, giving Glencore less exposure to Chinese demand fluctuations. Glencore said it had been given the green light by Japanese antitrust authorities.

Write to Razak Musah Baba at Razak.Baba@wsj.com and Michael Amon at michael.amon@wsj.com

LONDON -- Glencore PLC on Friday offered over $2.5 billion to buy a major piece of Rio Tinto PLC's Australian coal business, swooping in to disrupt an agreed-upon deal to sell the assets to a Chinese company.

The offer demonstrates the renewed appetite for deal-making by Glencore Chief Executive Ivan Glasenberg almost two years after the Switzerland-based commodity giant experienced a downward spiral in share price. Since the company's stock recovered, Mr. Glasenberg has engineered the purchase of a stake in Russian state oil company PAO Rosneft, taken full control of a Congolese mine and made a nearly $10 billion offer to take over agricultural trader Bunge Ltd.

In Australia, Mr. Glasenberg is targeting Rio Tinto coal assets that the company has long coveted. And he is inserting himself into a deal already thought sealed by Rio Tinto, the British-Australian company Mr. Glasenberg launched talks to buy in 2014.

Glencore said Friday its offer was $100 million richer than the amount Rio Tinto agreed on in January with Yancoal Australia Ltd. for Coal & Allied Industries Ltd. Coal & Allied has significant operations in Australia's Hunter Valley, where Glencore also has a big coal business, offering the potential for two of the world's largest mining companies to marry operations and save money.

Glencore said its offer was already fully financed and could be considered by Rio Tinto under the terms of its deal with Yancoal, which hadn't obtained financing at the time the Rio deal was announced. Glencore's offer expires on June 26, a day before Rio Tinto has scheduled an extraordinary general meeting to vote on the deal with Yancoal.

Rio Tinto said Friday that it had received Glencore's proposal and would respond after giving it "appropriate consideration." Yancoal couldn't be reached.

The interest in Rio Tinto's coal assets comes amid a volatile period for the commodity, in this case, thermal coal, which is used to generate electricity.

Its price shot up in 2016 as demand from China heated up. The market has cooled this year, and analysts expect thermal-coal prices to remain subdued as countries switch to cleaner-burning fuels.

In all, the operations that Glencore wants to buy account for about 60% of Rio Tinto's coal production. The sale would rid Rio of nearly all of its thermal coal, though it still produces significant amounts of metallurgical coal, an ingredient in steel.

Glencore emphasized on Friday that it was conscious of the strain this deal could put on debt levels that Mr. Glasenberg scrambled to lower over the past two years.

If successful in buying Coal & Allied from Rio Tinto, Glencore said it would explore selling up to a 50% stake in the business and look to sell other coal assets so that its total financial commitment wouldn't exceed $1.5 billion.

If Rio accepts the offer, Glencore said it would also buy out Japanese trader Mitsubishi's interest in Australian joint ventures for $920 million.

Much of Coal & Allied's production goes to Japan, giving Glencore less exposure to Chinese demand fluctuations. Glencore said it had been given the green light by Japanese antitrust authorities.

Write to Razak Musah Baba at Razak.Baba@wsj.com and Michael Amon at michael.amon@wsj.com

(END) Dow Jones Newswires

June 09, 2017 17:06 ET (21:06 GMT)