Rio Tinto recommends Yancoal coal offer over Glencore – by James Regan and Barbara Lewis (Reuters U.S. – June 20 2017)

SYDNEY/LONDON – Rio Tinto (RIO.L) (RIO.AX) selected Yancoal (YAL.AX) on Tuesday to buy its Coal & Allied division in Australia for $2.45 billion, surprising commodities trading giant Glencore (GLEN.L) which had put in a higher bid.

Earlier this month, Glencore offered $2.55 billion cash for Rio’s coal mines in the Hunter Valley region of New South Wales, beating a previous offer from Yancoal, which is based in Australia and owned by China’s Yanzhou Coal Mining Company.

Glencore has long sought Rio’s high-quality thermal coal assets in the Hunter Valley. Despite environmental concerns about the carbon-intensive fossil fuel, Glencore expects continued demand, especially in Asia, as coal can still be the cheapest form of baseload power.

Rio said it was favoring Yancoal’s offer in the light of additional information, including confirmation of Yancoal’s funding plans, confirmation of regulatory approvals and improved terms. Glencore said it would respond in due course.

“We believe Yancoal’s offer to purchase our thermal coal assets for $2.45 billion offers the best value and greater transaction certainty for shareholders,” Rio Tinto Chief Executive Jean-Sebastien Jacques said in a statement. He said the sale was part of a strategy to simplify Rio’s portfolio and ensure “the most effective use of our capital”.

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