Dividend hike, buyback in sight on Rio Tinto asset sales

Dividend hike, buyback in sight on Rio Tinto asset sales

Rio Tinto Group agreed to sell its thermal coal assets in Australia's Hunter Valley for up to $2.45 billion to Yancoal Australia Ltd.

The deal comprises an initial $1.95bn cash payment and $500m in aggregate deferred cash payments, payable as annual instalments of $100m over five years following completion.

Yancoal already owns seven Australian coal mines.

The sale of the NSW mines leaves Rio with coking coal mines producing around 12 million tonnes of coal a year.

The Sydney and London dual-listed firm said it had held "extensive" talks with potential suitors, but found Yancoal provided "the only offer that represented compelling value for the assets".

Rio has sold at least $7.7 billion in assets since 2013 as it sought to weather the downturn in commodities that was sparked by China's slowing growth and a glut of raw materials.

Yancoal Australia jumped as much as 4.2% to 50 Australian cents, while Noble Group gained 0.6% to 17.4 Singapore cents.

Dividend hike, buyback in sight on Rio Tinto asset sales

Rio's London-listed shares were up 3.3 percent in early trading on Tuesday, while the broader market was flat.

The Hunter Valley Operations and Mount Thorley Warkworth mines together produced 25.9 million tons of saleable thermal and semi-soft coking coal a year ago, with 17.1 million tons being Rio's share.

When asked whether she was comfortable with a Chinese dominated company taking control of a big portion of the Hunter Valley district, NSW premier Gladys Berejiklian said; "Foreign ownership is a federal issue".

The deal is subject to approvals from the Australian Government, Chinese regulatory agencies and the NSW Government.

"I don't think they're going to be hoarding the cash", said Liberum's Knights.

"The sale marks the end of Rio Tinto's gradual exit from thermal coal, commencing in 2009 with the Cloud Peak spinoff in the (US) Powder River Basin, and subsequent divestments of Clermont, Bengalla, and Mount Pleasant", Deutsche Bank said in a note to clients. "We carry Coal and Allied in our forecasts at a value of $US700 million, suggesting a material premium was paid, based on the total deal value of $US2.45 billion", he said in a note.

IEA expects larger than anticipated United States shale boost
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