Glencore PLC suffered another setback Monday in a bidding war for Australian coal mines, after the commodity giant’s rival Rio Tinto PLC said it would rather take a sweetened offer from a Chinese company.
Yancoal has also increased the break fee amount provided by its parent company, Yankuang, from $100 million to $225 million.
UBS mining analyst Glyn Lawcock said the deal looked to be settled, with little time left for Glencore to raise its bid ahead of a Rio Tinto shareholder meeting later on Tuesday.
Rio Tinto confirmed it would back Yancoal’s offer over Glencore because of higher value and greater transaction certainty.
Glencore said Rio has until 6 p.m.in London on Monday to accept. Rio said it will review Glencore’s new bid and provide an update before the shareholder meeting on Tuesday. It is likely to complete during the third quarter, “whereas any transaction with Glencore is unlikely to complete until the first half of 2018 at the earliest”.
“This (Yancoal) sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal’s strong proposal”, he said.
Both Glencore and Yancoal want to buy Rio Tinto’s mines to operate alongside existing operations, looking to sell lower-polluting thermal coal to power generators in Japan, Taiwan and South Korea that are under pressure to become more efficient and to lower emissions.
Analysts had estimated potential synergies at more than $US500 million ($A737 million) for Glencore in the deal.
The Yanzhou deal comes after the price of power-station coal delivered at the port of Newcastle in Australia nearly doubled in November from June to a four-year high of US$100 a tonne after China, the world’s largest coal producer, slashed output last year.
Rio argued that the Australian coalminer controlled by Yanzhou Coal, of China, was better placed to complete the transaction than Glencore because it already had the necessary regulatory approvals in place.
Success for Yancoal would make it the biggest coal-only producer in Australia and give it a stake in Port Waratah Coal Services Ltd., the owner of two terminals at the port of Newcastle, the country’s main conduit for thermal coal.