Glencore to acquire 49% of Hunter Valley Operations

JOHANNESBURG (miningweekly.com) – Diversified mining and marketing company Glencore announced on Thursday that it had signed agreements with Yancoal Australia Limited (Yancoal) to acquire a 49% interest in the Hunter Valley Operations (HVO) coal mine in New South Wales and form a joint venture (JV) following Yancoal's acquisition of Coal & Allied (C&A) from Rio Tinto.

Glencore will pay $1.14-billion cash plus a 27.9% share of $240-million non-contingent royalties over five years and 49% of price-contingent royalties payable by Yancoal to Rio Tinto on production from HVO in respect of the C&A acquisition.

“The HVO JV may be second prize for Glencore but for shareholders, the deal offers the best of both worlds: smaller capital outlay while retaining the potential to extract meaningful synergies,” mining analyst firm Macquarie Research Equity commented in a note.

The deal would be a win-win situation for Glencore and Yancoal, said Bernstein analysts Paul Gait, Catherine Tubb and Jonathan Absolon.

Glencore will acquire a 16.6% interest in HVO directly from Yancoal and the companies will work together to acquire Mitsubishi Development's 32.4% interest in HVO to achieve Glencore's 49% stake.

The London-, Hong Kong- and Johannesburg-listed group headed by CEO Ivan Glasenberg will be entitled to its share of the profits of HVO from the date that Yancoal completes its acquisition of C&A.

Glencore has also agreed to subscribe for $300-million worth of shares in Yancoal's equity raising.

The transaction will be funded from Glencore's existing cash resources and committed facilities and is subject to Glencore obtaining the necessary regulatory approvals. Glencore expects the transaction to close within six months.

In order to deliver maximum operational synergies, Glencore will nominate the candidates for HVO's general management position while Yancoal will nominate the candidates for HVO's financial controller position. Glencore will provide operational and support services to the HVO JV.

Glencore will be the exclusive marketing agent for HVO coal sales into Japan, South Korea and all other countries, excluding China, Taiwan (with certain exclusions), Thailand and Malaysia.

HVO is a large-scale, long-life and low-cost coal mine producing quality export thermal coal and semi-soft coking coal. It is located next to a number of existing Glencore mines in the Hunter Valley.

The addition of 49% of HVO to Glencore's existing portfolio in the Hunter Valley will unlock mining and operating synergies.

Glencore's combined portfolio of mines in the Hunter Valley, including HVO, will have production capacity of 69-million tonnes a year of high quality energy coal to meet increasing Asian demand.