Glencore Raises Offer for Rio Tinto's Australian Coal Assets -- 2nd Update

By Tapan Panchal Features Dow Jones Newswires

Glencore PLC said Friday it has submitted a sweetened all-cash offer of $2.68 billion for Rio Tinto PLC's Australian coal assets, days after its previous attempt to scotch an acquisition by a Chinese suitor was rejected.

Continue Reading Below

The Anglo-Swiss mining-and-commodities trading giant said its bid for Coal & Allied Industries Ltd., which includes a coal price-linked royalty, is fully funded and is at least $225 million greater than an offer made by Yancoal Australia Ltd., a subsidiary of China's Yanzhou Coal Mining Co.

Anglo-Australian mining company Rio Tinto on Tuesday rebuffed a $2.5 billion offer Glencore made earlier this month, and recommended that shareholders approve Yancoal's $2.45 billion bid, in part because it expects to complete the deal faster than one with Glencore.

Glencore also offered Rio Tinto a $225 million deposit to be forfeited if the transaction were unable to obtain regulatory approval.

Rio Tinto said Friday its board will consider Glencore's proposal and provide an update ahead of its general meeting on Tuesday.

Friday's raised offer from Glencore further demonstrates the renewed appetite for deal-making by Chief Executive Ivan Glasenberg almost two years after the Switzerland-based commodity giant experienced a downward spiral in share price.

Continue Reading Below

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 an offer to take over agricultural trader Bunge Ltd.

Mr. Glasenberg has long coveted Rio Tinto's coal assets because they sit near some of Glencore's Australian coal operations, offering opportunities for cost savings were they to merge.

"The probability of Glencore gaining these assets has increased in our view," RBC Capital Markets said in a note on Friday.

A Glencore takeover of Rio's coal assets would hand more control to a company that is already one of the biggest coal traders in the world. Rio has touted Yancoal's approval from regulators in China, a voracious consumer of coal.

In its news release announcing its higher offer, Glencore suggested that Rio's concerns about Chinese regulatory approvals -- which Yancoal already has -- are overblown. Chinese antitrust regulators have flexed their muscles on mining deals in recent years but Glencore said it is "reasonably confident" the Rio assets up for sale represent less than 1% of China's seaborne imports.

"Glencore therefore believes that any concerns regarding Chinese antitrust approval risk are not justifiable," the company said.

Rio Tinto is trying to shed much of its coal operations, especially thermal coal, the type burned to make electricity.

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

Glencore, the world's biggest trader of thermal coal, expects demand for the fossil fuel to remain solid, since it is one of the cheapest fuels for electricity generation.

Shares of Glencore were down 0.4% in Friday afternoon trading, while Rio shares were up 1.2%.

Write to Tapan Panchal at Tapan.Panchal@wsj.com

(END) Dow Jones Newswires

June 23, 2017 13:35 ET (17:35 GMT)