Rio Tinto's sale of its 40% stake of the Bengalla Coal Mine in the NSW Hunter Valley shows the strength and long-term viability of the Australian Coal Industry. Despite the current downturn, there appears to be no ‘bargains’ to be had in Australia.
The sale price of AUS$865 million to New Hope Corp. is certainly not a fire sale, rather it represents somewhat of a premium price for the asset. New Hope's acquisition also represents the strong future of the Australian Coal Industry and the fact that coal consumption and demand is expected to increase over the next 30 – 40 yr.
For Rio, it is a good move for a number of reasons. The cash sale will allow it to restructure its debt and strengthen the current balance sheet. It will also simplify the ownership structure of the group of coal mines under the Coal & Allied banner. The sale now sees Rio gaining 100% ownership of the Coal & Allied and Mitsubishi holding.
For New Hope, it is also a good move. It provides it with an additional fully operational mine with existing customers and a 25 yr permitted mine plan. With the Bengalla mine production of about 8.6 million t, it will immediately and significantly boost New Hopes annual production. Bengalla is reported be well managed and to have a competitive cost structure.
While a flurry of M&A's are expected in the Australian coal scene, it appears that there will be no ‘bargains’. Compared to recent coal mine sales for no cash up front in the USA, the sale price for Bengalla represents a strong future for the Australian Coal Industry.
About the author: Russell Taylor is an executive in the mining industry with experience in Australia, Mongolia, India and Indonesia.
Read the article online at: https://www.worldcoal.com/special-reports/01102015/bengalla-sale-highlights-strength-of-australian-coal-industry-2934/