Davis’s X2 Resources goes after Rio’s coal assets in Australia

The negotiations between the parties, still at an early stage, have generated solid interest from both sides, Financial Times reported Tuesday citing people familiar with the matter.

The former Xstrata boss is likely to face off with his historic rival and the man many see as the natural owner of the assets, Glencore’s Ivan Glasenberg. Real cost synergies are not common in mining and, when present, they are usually the product of proximity, which is exactly what makes Rio’s assets attractive for the Swiss giant.

READ ALSO: Rio Tinto, Glencore could save $500m by joining coal businesses

Rio Tinto’s operations — Bengalla, Hunter Valley Operations and Mount Thorley Warkworth — are right next door to Glencore’s coal business in the Hunter Valley. The three mines produced 28 million metric tons of thermal coal used for electricity generation in 2013, the last year for which data is available. They also produced almost 6 million tons of semi-soft coking coal, used in the production of steel.

X2, which has $5.6 billion to spend on mining assets, has so far expressed interest in a number of assets in copper, coal and other commodities, but has yet to make its first acquisition.

Last week, Rio Tinto sold its Murowa Diamonds mine in Zimbabwe, as well as a 50% stake in the country’s Sengwa Colliery energy project. The company is undergoing an internal restructuring considered one of the most aggressive since CEO Sam Walsh took helm in 2012.