Yancoal to raise $2.5bn for Hunter Valley coal acquisition

PERTH (miningweekly.com) – ASX-listed Yancoal on Wednesday announced a $2.5-billion capital raise to fund the acquisition of mining major Rio Tinto’s Coal & Allied assets.

Yancoal told shareholders that the company would launch a 23.6-for-1 pro-rata renounceable entitlement offer, priced at 10c each, to raise the funds.

The entitlement offer has been underwritten to $2.3-billion, with Yancoal’s holding company Yanzhou committed to subscribe for $1-billion of its entitlement under the offer.

In addition to the entitlement offer, Yancoal would also raise some $150-million from a share placement to strategic investors, with the shares to be priced at 10c each.

Yancoal noted that the offer price of both the entitlement offer and the share placement represented a 67.9% discount to the company’s last closing price, as well as a 4.6% discount to the theoretical ex rights price.

The company’s share price plummeted on the capital raising announcement, falling by 36% to A$0.25 a share.

Yancoal chairperson Xixyong Li said that the continued expansion of Yancoal through the acquisition of Coal & Allied provided new investment opportunities for existing shareholders and third parties looking to support the growth of the Australian resources sector.

“The pro-rata entitlement offer has been determined in the interest of all shareholders and is expected to generate the necessary funding to support the next stage of our business evolution.”

Yancoal was named as the preferred bidder for Rio’s Australian Coal & Allied (C&A) unit in June, after increasing its offer to $2.69-billion, adding $240-million in unconditional guaranteed royalty payments to a previous cash offer of $2.45-billion.

The Yancoal offer was increased to rival a bid from Glencore, which had offered Rio $2.67-billion for the C&A assets, which include a number of opencut thermal coal mines in the Hunter Valley.

Last week, Glencore announced that it had struck a deal with 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 C&A.

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.

C&A holds an 80% interest in the Mount Thorley mine, a 55.6% interest in the Warkworth mine, a 36.5% interest in Port Waratah Coal Services, as well as other undeveloped coal assets. The Hunter Valley and Mount Thorley Warkworth operations produced 25.9-million tonnes of saleable thermal coal and semi-soft coking coal in 2016.