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Rio Tinto wins coal exit after $2.45bn China deal cleared

Pending shareholder approval.

Rio Tinto Group is closer to an exit from thermal coal after winning approval from Australia’s foreign investment regulator to sell the bulk of its mines to a company controlled by China’s Yanzhou Coal Mining Co. for $2.45 billion.

The Foreign Investment Review Board approved the Coal & Allied deal leaving the world’s second-biggest miner with only two producing coal mines in the country that was once the cornerstone of its energy business. Both Rio and Yancoal Australia require shareholder approval with the transaction expected to complete in the third quarter of 2017.

“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,” Yancoal Chief Executive Officer Reinhold Schmidt said in a statement Thursday.

The deal is the first major transaction by Rio under Chief Executive Officer Jean Sebastien Jacques, and may build momentum for other takeover deals in Australia involving Asian companies to proceed. 

Foreign investment remains a sensitive issue after Australia’s Treasurer Scott Morrison barred separate bids for state-owned power network Ausgrid last year from Hong Kong billionaire Li Ka-Shing and China’s State Grid Corp. Li now hopes to buy Duet Group in a A$7.4 billion deal and Hong Kong’s Chow Tai Fook Enterprises Ltd. is set to acquire Alinta Energy Holdings Ltd. for A$4 billion. Both takeovers are subject to approval by FIRB.

The sale to Yancoal Australia Ltd. includes an initial $1.95 billion cash payment and $500 million in annual installments of $100 million following completion. Yancoal is yet to secure financing for the deal with investors awaiting details of a capital raising and share offer. Yanzhou has said it would subscribe for $1 billion of its entitlement in the Yancoal offer.

Yancoal, which is 13 percent owned by Asian commodity trading giant Noble Group Ltd., said in January the acquisition would make it Australia’s largest pure-play producer of the commodity. Chinese state-owned Yanzhou Coal owns 78 percent of the Australian Securities Exchange-listed company.

© 2017 Bloomberg L.P

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