Rio Tinto share price: Miner sells undeveloped Aussie coal project for $224m

on Jan 27, 2016
Updated: Oct 21, 2019

Rio Tinto Plc (LON:RIO) announced today that it had signed a binding agreement for the sale of the undeveloped Mount Pleasant thermal coal assets to MACH Energy Australia for a total of $224 million (£156 million).

The payment includes $83 million on completion, two deferred tranches of $58 million payable eight and 16 months after completion, as well as a conditional $25 million. The deal also arranged that MACH will pay royalties equal to two percent of gross revenue for coal sold from the mine’s 474 million tonnes of booked marketable reserves, when prices exceed $72.50 per tonne. The commodity currently trades at about $50 per tonne.

Mount Pleasant has the capacity and permits to produce up to 10.5 million tonnes of raw, Run of Mine (RoM) thermal coal annually. As of June 30 2015, the project had gross assets valued at $144 million and no profits, Rio noted.
“We believe Mount Pleasant can have a very positive future under its new owners with different priorities for development and capital allocation,” the company said in today’s statement.
Completion of the deal is expected in the second quarter of 2016.
The sale comes after Rio sold its 40 percent interest in the Bengalla coal project for $606 million in September. The mine was the smallest amongst Rio’s Hunter Valley assets, producing 8.6Mt of RoM coal, and fetched a relatively high price, analysts noted at the time.
The combined value of the Hunter Valley assets under Rio’s control is $3-4 billion dollars, Macquarie calculated following the sale of Bengalla, with Rio’s stakes worth about $2.2 billion.
Speculation has risen following the Bengalla deal that Rio plans to completely exit coal sooner rather than later, as prices slid amid a wider commodity rout and growing environmental pressure.
The Melbourne-based miner noted today that it has now agreed $830 million in asset sales over the past four months, while the tally since the start of 2013 is up to $4.7 billion.
“These agreements for over $800 million in asset sales deliver significant value for our shareholders, with the potential for future royalties from Mount Pleasant,” Rio Tinto Copper & Coal chief executive Jean-Sébastien Jacques said.
Rio has three major assets remaining in the area. The Hunter Valley Operations project, in which Rio holds a 67.6-percent interest, produced more than 13 million tonnes of thermal and semi-soft coking coal in 2013. The Mount Thorley and Warkworth operations, in which the company holds 80 percent and 55.6 percent, respectively, produced a total of over 12 million tonnes of coal.
Rio’s share price in Sydney closed today’s session about 2.7 percent in the red at A$38.11 per share, the second-lowest closing price in the past six years. The miner’s London listing has dropped nearly 20 percent so far this year, closing Tuesday’s session at 1,615.74p.
As of 07:44 GMT, Wednesday, 27 January, Rio Tinto plc share price is 1,688.50p.