An arm of the Chinese government has snapped up Rio Tinto's coal mines in NSW and in the process has emerged as one of the largest coal miners in Australia.
Ending months of speculation, Rio has finally managed to offload its remaining coal interests in NSW, selling out to the Chinese government-controlled Yancoal Australia, although it is expected to take much of 2017 for the deal to be settled.
![Rio chief executive Jean-Sébastien Jacques said the sale "delivers outstanding value for our shareholders".](/web/20170126144836im_/http://www.smh.com.au/content/dam/images/g/t/5/g/z/a/image.related.articleLeadwide.620x349.gty09e.png/1485291880352.jpg)
With the acquisition, Yancoal will now own some of the largest single coal mines in Australia, with a suite of mines in NSW and Queensland. It is yet to clarify how it will fund the purchase, although a share issue is expected to be launched in the June quarter.
The Chinese-controlled company will more than double in size, producing more than 42 million tonnes of coal in Australia.
![The sale of Coal & Allied represents the culmination of an extensive assessment of all strategic options, Rio said.](/web/20170126144836im_/http://www.smh.com.au/content/dam/images/g/t/y/0/6/1/image.related.articleLeadwide.620x349.gty09e.png/1485322667180.jpg)
Rio said it will raise $US2.45 billion ($3.3 billion) from the sale of its Coal and Allied unit to Yancoal, while it will also be entitled to ongoing royalty payments from Yancoal.
The sale follows the $US600 million deal reached a little more than a year ago with New Hope Collieries for the sale of Rio's stake in the Bengalla coal mine, which is also in NSW.
News of the sale triggered a surge in Rio shares in London trading overnight, rallyig by more than 3 per cent.
Rio is to receive an immediate $US1.95 ($2.6) billion, in cash, with the remaining $US500 ($660) million paid in annual $US100 ($132) million instalments.
![Yancoal is buying Rio's NSW coal mines.](/web/20170126144836im_/http://www.smh.com.au/content/dam/images/g/t/y/0/5/q/image.related.articleLeadwide.620x349.gty09e.png/1485299902489.jpg)
Rio chief executive Jean-Sébastien Jacques said the sale "delivers outstanding value for our shareholders".
"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," he said.
The sale of Rio's Coal & Allied unit represents the culmination of an extensive assessment of all strategic options for these assets, the Anglo-Australian miner said, and it comes after "a comprehensive market testing and price discovery process" along with negotiations with a number of potential buyers.
"Yancoal Australia provided the only offer that represented compelling value for the assets," it said.
With the sale, Rio said it has either announced or completed $US7.7 billion of asset sales since 2013, including the sale of its share of the Clermont coal mine, the Bengalla coal mine and the Mount Pleasant coal project.
The mines being sold to Yancoal produced 25.9 million tonnes of thermal and semi-soft coking coal in 2016 of which Rio's share was 17.1 million tonnes. The net assets subject to this sale agreement had earnings before tax of $US102 million in the 2015, and a gross asset value attributable to them of $US1.895 billion as at June 2016.
Yancoal Australia is 78 per cent owned by Yanzhou Coal Mining Co of Hong Kong, which is in turn controlled by an arm of the Chinese government. Yancoal sells around 25 million tonnes of coal annually produced at its Australian mines.
The deal is subject to state and federal government scrutiny, Rio said.
Following settlement, Yancoal is to a pay royalties of $US2 a tonne as long as the thermal coal price is over $US75 a tonne.
Yancoal's offshore parent said it will pump $US1 billion of additional equity into its Australian arm while also looking for other investors to take up shares in any fund raising.
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