Australian authorities have given Yancoal (ASX:YAL), the subsidiary of China’s Yanzhou Coal Mining, the green light to go ahead with its planned $2.45 billion acquisition of Rio Tinto’s (ASX, LON:RIO) thermal coal assets in the Hunter Valley.
The Coal & Allied unit includes Rio’s stakes in the Hunter Valley Operations mine, Mount Thorley and Warkworth mines, as well as a stake in a coal export terminal at Newcastle.
The Foreign Investment Review Board approved the deal, the largest acquisition by a Chinese government-controlled firm of Australian assets, which leaves Rio with just two producing coal mines in the country.
“Today’s FIRB approval is a positive step forward for Yancoal, its shareholders and the Hunter Valley, demonstrating the Australian Government’s support for continued investment into the local resources sector,” the company’s chief executive officer Reinhold Schmidt said in a statement.
The transaction involves an initial payment of $1.95 billion for Rio’s Coal & Allied Industries Ltd., followed by further annual payments, taking the total price up to $2.45 billion. Yancoal also has an option to pay a single cash payment of $2.35 billion, Rio said in January.
The Coal & Allied unit includes Rio Tinto’s interests in the Hunter Valley Operations mine, an 80% interest in the Mount Thorley mine, a 55.6% stake in the Warkworth mine, and a 36.5% share in a coal export terminal at Newcastle.
With the approval of the acquisition, Yancoal Australia becomes the largest pure-play coal producer, though the deal is still subject to approval by the shareholders of both Rio Tinto and Yanzhou Coal.
Should the transaction fall apart, Yancoal will be able to walk away from it without a severe financial penalty, as Rio Tinto set the termination fee at just $23.5 million.
