Glencore makes offer for Rio Tinto's Australian coal mines

Glencore has made an offer to buy Rio Tinto's interest in Coal & Allied Industries(C&A) for $2.55bn in cash plus a coal price-linked royalty.

The offer comprises $2.05bn in cash payable on completion and $500m in aggregate deferred cash payments, payable as annual instalments of $100m over five years following completion. The deal will be funded from existing cash resources and committed facilities.

Glencore said the addition of the C&A assets to its existing portfolio in the Hunter Valley would unlock large scale mining and operating synergies. The company's combined portfolio of mines in the Hunter Valley would have production capacity of 81m tonnes a year of high energy coal that feeds increasing Asian demand for high efficiency, low emission coal.

Rio Tinto acknowledged on Monday that it had received a proposal from Glencore on Friday.

"The Rio Tinto board and management will give the proposal appropriate consideration and respond in due course," it said.

Glencore pointed out that its offer was $100m higher than the one Rio agreed with Yancoal Australia in January and represents a "superior proposal" not just because of the price but also because it is fully funded and is not subject to any funding condition or termination right. By contrast, Yancoal has the right to terminate the Yancoal deal if it is unable to raise the funding, and its funding remains outstanding.

"In our view, the fully funded glencore proposal provides substantially more deal certainty and is more favourable to Rio Tinto shareholders," it said.

The terms of the Yancoal deal provide that Rio can engage in negotiations or discussions with a third party if the board determines that a competing proposal is superior and that compliance with the 'no talk' restriction would constitute a breach of their fiduciary or statutory duties.