Hong Kong — China’s Yanzhou Coal Mining is holding fire on a counteroffer for Rio Tinto Group’s Australian coal assets as it waits to hear if Glencore has succeeded in trumping the deal it struck six months ago.
Glencore CEO Ivan Glasenberg has submitted a proposal to buy Rio’s Coal & Allied unit in New South Wales for at least $2.55bn, the Swiss-based producer and trader said in a statement on Friday.
Yancoal … has to … calculate whether a higher bid could justify the purchase to its own shareholders
Yanzhou’s Yancoal Australia unit offered $2.45bn for the business in January.
The offer included an initial $1.95bn cash payment and $500m in yearly instalments of $100m following completion.
"If Rio Tinto determines that the Glencore proposal is a superior proposal, Yancoal will have a right to match or better that proposal," Yanzhou said in a Hong Kong exchange filing on Sunday.
A further announcement would be made by the company "if it receives notification from Rio Tinto in relation to whether the Glencore proposal constitutes a superior proposal", Yanzhou said.
Rio’s board and management would give the Glencore proposal "appropriate consideration and respond in due course", the company said in a statement on Friday.
A Rio spokesman declined to comment further on Monday.
Yanzhou has received outbound investment approval from China’s National Development and Reform Commission and the Ministry of Commerce as well as merger clearance from the nation’s Anti-Monopoly Bureau, it said.
The company expects to receive any outstanding approvals by the end of June, according to the statement.
"The Glencore decision puts Rio Tinto in a very difficult situation," said Helen Lau, a Hong Kong-based analyst with Argonaut Securities (Asia).
"It’s hard for the board to reject a higher offer, with better terms, but at the same time, it could be even more difficult to reject Yanzhou Coal, which has got almost all government clearance for the deal."
If Glencore’s bid succeeds, it would also seek to buy Mitsubishi’s stakes in two coal ventures in the same area for $920m. Glencore would sell at least $1.5bn in assets to mitigate the cost, it said.
The Rio coal operations are adjacent to Glencore mines in Australia’s Hunter Valley, and would take Glencore’s production capacity there to 81-million metric tonnes a year. In 2014, Glencore and Rio considered merging their coal businesses. "Yancoal has to wait and watch, but also has to carefully calculate whether a higher bid could justify the purchase to its own shareholders," Lau said.
"A good asset at the current price may not be a good one with another 10% premium. They have to make sure state investment is spent carefully and soundly on high-quality assets," Lau said.
Glencore’s bid for the coal assets comes just weeks after it expressed interest in a combination with grain trader Bunge as Glasenberg steps up expansion efforts following a painful commodities downturn in which it was forced to sell assets and cut costs.
The Glencore proposal will expire if by June 26 a binding purchase agreement has not been concluded.