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Debt-free Rio Tinto is within reach as coal divestments beat analysts forecasts

Rio Tinto was able to generate proceeds of more than US$11 billion through asset sales over the past five years, giving the company the option of becoming debt free, The Australian Financial Review reported March 28.

The mining giant's net debt stood at US$3.8 billion as of Dec. 31, 2017.

UBS said the US$2.25 billion sale of Kestrel appeared to have factored in long-term coal prices of US$170/tonne, which analysts called "impressive."

The diversified commodities giant agreed to sell its 80% stake in the Kestrel thermal and metallurgical coal mine in Queensland, Australia, to EMR Capital and PT Adaro Energy Tbk. for US$2.25 billion.

The latest deal brings Rio Tinto's proceeds from the recent Queensland coal sales to US$4.15 billion, whereas analysts had expected the mining giant to net between US$1.7 billion and US$2.2 billion for the entire business, implying a long-term coking coal price forecast of US$120/tonne.

Meanwhile, EMR Capital Managing Director Jason Chang was positive about the future of hard coking coal.

"We think longer-term hard coking coal will still command a good price ... most commentators would say the long term price could get to this level but on average, probably it wouldn't be sustained at this level," Chang was quoted as saying.

Chang noted that the deal for Kestrel will be funded through a combination of equity and debt without the need for further capital raising, with the equity fund to retain a majority stake in the asset following closing.

The private equity manager was able to raise US$860 million in 2016 to fund acquisitions with Chang and said some of the investors in that fund may inject further capital for the Kestrel buy.

Japanese trading house Mitsui & Co. Ltd. owns the remaining 20% in Kestrel.