Glencore Plc on June 9 announced the tabling of a rival bid to acquire Rio Tinto's entire stake in Coal & Allied Industries Ltd. for US$2.55 billion cash plus a coal price-linked royalty.
The Swiss commodities trader will pay US$2.05 billion cash upon completion and US$500 million in deferred cash payments, payable in annual US$100 million installments over five years following completion.
The Glencore proposal is superior by US$100 million as compared to Yancoal Australia Ltd.'s proposal of up to US$2.45 billion for the Coal & Allied subsidiary, which the Yanzhou Coal Mining Co. Ltd. unit agreed to acquire in January.
Coal & Allied owns an 80% stake in the Mount Thorley coal mine, a 55.57% interest in the Warkworth coal mine and a 67.6% interest in the Hunter Valley operations, along with a 36.5% stake in a coal export terminal at Newcastle port.
In addition, Glencore agreed to acquire Mitsubishi Corp.'s 32.4% joint venture stake in the Hunter Valley operation and 28.898% interest in the Warkworth joint venture for US$920 million in cash, subject to Glencore completing the acquisition of Coal & Allied from Rio Tinto.
The consideration comprises US$520 million upon completion and US$100 million on the first four anniversaries of completion of the deal.
In comparison, Yancoal made a binding US$710 million tag-along offer in May for Mitsubishi's 32.4% interest in the Hunter Valley coal operations.
Glencore's proposal will automatically expire if a binding share purchase agreement with Rio Tinto is not executed by June 26.
"Rio Tinto must provide Yancoal with the opportunity to present a counter offer," Glencore noted in its statement. "If any such counter offer is determined by the Rio Tinto board to be equally or no less favorable than the competing proposal, then Rio Tinto must accept the Yancoal counter offer."
Glencore also said it would fund the transaction from existing cash resources and committed facilities.
In the event the transaction is concluded, the mining giant plans to mitigate its overall financial commitment through the sale or monetization of assets, making its coal portfolio a priority, targeting no less than US$1.5 billion including exploring the option of selling up to 50% of its stake in the Coal & Allied mines.
"In any event, as part of our overall group financial policy, in addition to targeting maximum 2x net debt/adjusted EBITDA through the cycle, Glencore's balance sheet will be managed to prevent net debt increasing above December 2016's level of US$15.5 billion, thereby ensuring that our leverage target is comfortably met and financial conservatism maintained," the company said.