X2 Resources, the private-equity firm founded by former Xstrata Chief Executive Officer Mick Davis, is in talks to buy Rio Tinto Group’s controlling stake in three Australian coal mines, according to two people familiar with the matter.
The negotiations are at an early stage and any deal, which may fetch $2 billion to $4 billion, could take two months to finalize, said one of the people, who asked not to be identified because the talks are private. The Rio mines in New South Wales have positive cash flow, despite the current coal-price slump, the person said.
A deal would mark the latest move by Rio CEO Sam Walsh to exit less-profitable assets as the London-based company focuses on iron ore and copper. It would also be the first purchase for Davis since he raised several billions of dollars from investors to pursue mining acquisitions.
“They’re good mines, they’re large scale, long-life and have relatively low costs. If you have an interest in thermal coal you could do a lot worse than buying these assets,” Chris Drew, a Sydney-based analyst with RBC Capital Markets, said by phone. “Thermal coal is looking pretty difficult right now, but if you take a more positive view on the long term, then there’s potentially an opportunity there.” Continue Reading →