Rio Tinto completes sale of subsidiary Coal & Allied Industries Ltd

02 Sep 2017

Rio Tinto PLC said today that it has completed the sale of its wholly-owned subsidiary Coal & Allied Industries Ltd to Yancoal Australia Ltd.

Yancoal will take over management of Rio Tinto's thermal coal business in the Hunter Valley region of New South Wales from today.

According to the mining giant, it will receive total consideration of $2.69 billion for the sale, along with customary adjustments for net debt and net working capital at completion. The $2.69 billion comprises $2.45 billion in cash paid today and a further $240 million of unconditional guaranteed royalty payments.

The first royalty payment of $10 million was made today and an additional $100 million will be received by the end of this year, according to the company. It added, a further $90 million is expected before the end of 2018, and under the terms of the sale, Rio Tinto also may receive an additional royalty linked to the coal price capped at $410 million.

According to Rio Tinto the consideration received will be allocated to general corporate purposes, and the group's capital allocation framework will be applied.

As all Hunter Valley coal operations transfer to Yancoal from today, Rio Tinto's guidance for thermal coal production in 2017 has been revised to between 13 million and 14 million tonnes, from 17 million to 18 million tonnes previously.

According to Rio Tinto, the taxable gain on the disposal of the assets was expected to be largely offset by carried forward capital losses in Australia.

''Therefore the cash tax payable is expected to be relatively low compared to the quantum of the taxable gain,'' the company said in a statement.

China-backed Yancoal beat Glencore in a bidding war for the assets.

Analysts at Investec said that tax on the sale was expected to be low, given carried forward losses, leaving Rio in a very comfortable position.