Mining and Heavy Industries

Rio sells Hail Creek to Glencore for $2.2bn

Rio Tinto has announced a binding agreement with Glencore to sell its entire 82% stake in Hail Creek coal mine in Queensland to Glencore for US$1.7 billion (A$2.2 billion).

The deal, which also includes the sale of Rio’s 71.2% stake in the Valeria coal development, is part of Rio’s program to focus on assets with the highest returns, the company said.

“The sale of Hail Creek and Valeria delivers compelling value for our shareholders and continues our strategy of strengthening our portfolio, focusing on highest returns, maintaining a strong balance sheet and allocating capital to the highest value opportunities,” Rio boss J-S Jacques said.

“We expect that Hail Creek will continue to perform strongly under its new owner, securing long-term jobs and continuing its contribution to the State of Queensland.”

Rio is continuing a process to progressively sell all of its Australian coal assets.

Hail Creek, situated in the north of the Bowen Basin, 120 kilometres south-west of Mackay, includes three tenements: Hail Creek, Lake Elphinstone and Mount Robert.

The mine is an open cut operation which opened in 2003. It produced 9.4 million tonnes of saleable coal in 2017, of which 5.25 million tonnes was hard coking coal, and 4.13 million tonnes was thermal coal.

The addition of Hail Creek to Glencore’s Australian portfolio will bring the Swiss company’s annual coal production in Australia to roughly 100 million tonnes.

Rio reported marketable reserves of 142 million tonnes at Hail Creek on December 31, 2017. It reported mineral resources of 601 million tonnes.

Valeria is described as a large, undeveloped coal project in the central Bowen Basin, with tenements containing 762 million tonnes of coal mineral resources. Valeria would produce high energy, low ash thermal and coking coal, if developed, Rio said.

The remaining 18% of Hail Creek not included in this sale is owned by Nippon Steel Australia (8%), Marubeni Coal (6.67%) and Sumisho Coal Development (3.33%).

In FY17, Rio’s attributable share of Hail Creek contributed US$408 million in EBITDA, and US$357 million in pre-tax profit.

Glencore’s 17 operational mines in Queensland and New South Wales produced more than 87 million tonnes of saleable coal in the 2017 calendar year.

The sale of both assets is subject to regulatory approvals and other conditions. The sides expect to complete the deal in the second half of 2018.

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