Rio Exits Coal Business With $4 Billion of Deals in a Week

(Bloomberg) -- Rio Tinto Group completed its exit from coal with a bang, agreeing to sell more than $4 billion of Australian mines in just a week.

The world’s second-biggest miner on Tuesday agreed to sell its last coal mine, the Kestrel operation in Australia’s Queensland state, for $2.25 billion to private equity firm EMR Capital and Indonesia’s PT Adaro Energy. That follows announcements last week that Rio will offload coal assets to Glencore Plc for $1.7 billion in cash and sell an undeveloped project.

Just five years ago it would have been hard to imagine that one of the top miners wouldn’t be digging up the dirtiest fuel, which generates about 40 percent of the world’s electricity. Rio’s coal-free future is in stark contrast to many of its rivals, such as Glencore, the world’s top coal shipper. The commodity is one of BHP Billiton Ltd.’s main strategies, while Anglo American Plc has pulled back on plans to sell out.

Rio won a high price for the Kestrel asset -- which mainly produces hard coking coal used in steelmaking -- offering the producer more flexibility to boost shareholder returns and to pursue possible acquisitions, London-based RBC Capital Markets analyst Tyler Broda said in a note. “Additionally, Rio Tinto will become the only major without coal assets -- certainly helpful for ESG-conscious investors.”

Rio Exits Coal Business With $4 Billion of Deals in a Week

Rio declined 0.3 percent to A$73.96 by 11:49 a.m. in Wednesday trading in Sydney, as BHP Billiton Ltd. fell 0.7 percent.

While many miners are bullish on coal, the fuel has become a flashpoint for a growing movement of investors calling for miners to cut their exposure. For example, Norway’s sovereign wealth fund doesn’t invest in firms that make 30 percent of their sales from coal, while the Church of England sets the limit at 10 percent.

Rio’s decision is aimed at prioritizing iron ore, copper, bauxite and aluminum operations, Chief Executive Officer Jean-Sebastien Jacques said Saturday in an interview with Bloomberg Television. Jacques has argued that even a mining firm as large as his has only so much managerial talent and money, and must focus those on more productive assets.

Rio has also been able to sell coal mines for what it sees as good prices, allowing more cash to be returned to shareholders. The sales deliver “exceptional value to our shareholders and will leave our portfolio stronger,” Jacques said in a statement.

The London-based miner has been shedding its Australian coal assets since dismantling its coal division in 2015. Last year, Rio agreed to sell its Coal & Allied Industries Ltd. to China’s Yanzhou Coal Mining Co., before Glencore then bought a stake in the project. Rio has also sold other projects in places from Australia to Mozambique.

Rio’s energy operations, including coal, uranium and other assets, accounted for about 7 percent of revenue last year, down from a peak of 24 percent a decade earlier, according to data compiled by Bloomberg.

Rio Exits Coal Business With $4 Billion of Deals in a Week

In 2017, the Kestrel mine produced 4.25 million metric tons of hard coking coal and 0.84 million tons of thermal coal. Rio will decide in August whether to use proceeds from the Kestrel sale to fund additional returns to investors, Jacques said in the Saturday interview. The deal is expected to complete in the second half of the year.

Rio’s move to sell its final coal mine leaves the producer “leaner and greener,” UBS Group AG analysts including Sydney-based Glyn Lawcock said in a Wednesday note. There’s scope for Rio to raise a further $3 billion this year with additional sales of aluminum and iron ore assets, according to Lawcock.

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