How Yancoal and Glencore Can Bury the Hatchet – by David Fickling (Bloomberg News – June 27, 2017)

The world’s biggest coal consumer and the largest commodity trader are fighting over a rich seam of the black stuff. They’d be better off working together.

Shareholders of Rio Tinto Group’s U.K. listing were voting Tuesday on whether to accept a $2.69 billion offer to buy Coal & Allied Industries Ltd. from Yancoal Australia Ltd., which is ultimately controlled by the Chinese government.

Rio Tinto’s management has declared the proposal superior to a bid from Glencore Plc, which has adjacent mines in Australia’s Hunter Valley, north of Sydney, and has coveted Rio Tinto’s deposit for the best part of a decade.

To date, Glencore’s best hope of breaking up a deal has been the possibility that Yancoal — market cap A$288 million ($219 million) — would be unable to fund the $2.45 billion upfront payment. That’s before $940 million to buy out Mitsubishi Corp.’s minority interests in the pits and some $240 million of longer-term royalties.

Of the $2.45 billion, Yancoal’s immediate parent, Yanzhou Coal Mining Co., has pledged $1 billion. The remainder is to be met through the sale of new shares — but that always looked hard to get away in one shot, given the speed at which coal is losing investors’ favor. Global issuance of new coal shares over the 17 quarters through the end of 2016 came to just $1.16 billion.

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