Rio Tinto sells mines to China's Yancoal

A coal mining site in Australia. [Photo/IC]

SYDNEY - Australian mining juggernaut Rio Tinto has struck the biggest ever single asset sale in their company's history, agreeing terms with Yancoal Australia, owned by Chinese company Yanzhou Coal Mining, for $2.45 billion sale of their News South Wales business, Coal & Allied, late Tuesday.

Rio will take an initial payment of $1.95 billion, along with up to $500 million over the next five years, not including any further royalty payments to be made.

The transaction is still conditional, and is dependent on Yancoal being able to secure funding on "reasonably acceptable terms", with a clause to terminate the deal included if they are unable to do so.

Rio Tinto said the sale came after all avenues were explored, and that the offer from Yancoal stood alone as representing "compelling value".

"The sale delivers outstanding value for our shareholders and is consistent with our strategy of reshaping our portfolio to ensure the most effective use of capital," said Jean-Sebastian Jacques, chief executive of Rio Tinto.

"We are confident that Coal & Allied will continue to contribute to the NSW economy and the communities of the Hunter Valley under a new owner."

The move comes as Rio Tinto has aggressively attempted to divest itself of its coal mines over the past few years, as part of a broader asset divestiture program.

Yancoal hopes to add the purchase to their extensive portfolio in the Australian coal space, and are currently the owner or operator of seven operations.

Li Xiyong, chairman of Yancoal, was excited about the addition of world class, tier-one assets to the company's asset base.

"This is a transformative and exciting acquisition for Yancoal shareholders and will form the basis for our future growth and success as Australia's largest pure-play coal company," Li said.

"The new Yancoal will very well positioned to realize significant value for our shareholders in the years ahead."

Once settlement is finalized, Yancoal will pay royalties of $2 per metric ton as long as the thermal coal price remains above $75 a ton.