Glencore Said to Study Rio Australia Coal-Assets Combination – by Jesse Riseborough (Bloomberg News – June 11, 2013)

Glencore Xstrata Plc (GLEN), the biggest exporter of power station coal, is studying a plan to combine some of its Australian coal operations with mines run by Rio Tinto Group, according to two people familiar with the matter.

Glencore and Rio own some of the largest thermal coal mines in the Hunter Valley region of New South Wales and have held initial talks on ways to share mines and infrastructure to cut costs, the people said, asking not to be identified as the discussions are confidential. There is no certainty an agreement will be reached, one of the people said.

Slumping Chinese imports of the fuel and rising output in Indonesia are suppressing demand for Australian coal, prompting producers to fire workers to reduce costs. Baar, Switzerland-based Glencore Xstrata has interests in about 35 coal mines in Colombia, Africa and Australia, accounting for about 10 percent of global seaborne supplies of the fuel.

Spokesmen for Glencore and Rio Tinto declined to comment.

“A sharing of infrastructure and some combination of operations would likely have significant merit given coal earnings are highly sensitive to any reduction in the unit cost base,” Ash Lazenby, an analyst at Liberum Capital Ltd. in London, said today.

Glencore acquired Xstrata Plc in a $29 billion all-share deal last month, adding coal mines north of Sydney to its global commodities trading empire. The world’s fourth-biggest mining company is completing an integration plan for Xstrata’s assets and envisages more than $500 million in cost savings.

Queensland Mines

Rio Tinto’s Coal & Allied unit owns mines in the Hunter Valley. The second-biggest mining company has hired Deutsche Bank AG to sell as much as 29 percent of the unit to reduce its stake to as low as 51 percent, the Wall Street Journal reported in April, citing unidentified people. Rio is also studying the sale of its stakes in Clermont and Blair Athol mines in Queensland state, it said.

Glencore Xstrata owns the Ravensworth, Mount Owen and Liddell coal operations in the Hunter Valley. The company halted work on the Balaclava Island export terminal last month in Queensland, citing poor market conditions, overcapacity and concerns that the medium-term outlook would be negative for demand.

Australia is the world’s second-biggest exporter of power-station coal. Glencore Xstrata’s Australian operations produced 11 million metric tons of the fuel for shipment overseas in the first quarter this year, it said May 13. Prices were 23 percent lower in the quarter compared with a year earlier, it said.

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