Rio Tinto completes $2.7bn Coal & Allied sale

Rio Tinto confirmed the completion of the sale of its wholly-owned subsidiary Coal & Allied Industries Limited to Yancoal Australia on Friday.

The FTSE 100 company said that from Friday, Yancoal was taking over management of Rio Tinto's thermal coal business in the Hunter Valley region of New South Wales.

It said it would receive total consideration of $2.69bn for the sale, together with customary adjustments for net debt and net working capital at completion.

“The $2.69bn comprises $2.45bn in cash paid today and a further $240m of unconditional guaranteed royalty payments,” the company’s board said in its statement,

The first royalty payment of $10m was made on Friday and an additional $100m would be received by the end of the year, Rio Tinto said.

A further $90m was expected before the end of 2018, and under the terms of the sale, Rio Tinto may also receive an additional royalty linked to the coal price capped at $410m.

“Rio Tinto will use the consideration received for general corporate purposes and the Group's capital allocation framework will be applied,” the board said in a statement.

“With production from all Hunter Valley coal operations transferring to Yancoal from today, the group's guidance for thermal coal production in 2017 has been revised to 13-14 million tonnes, from 17-18 million tonnes previously.”

Rio Tinto said the taxable gain on the disposal of the assets was expected to be largely offset by carried forward capital losses in Australia.

“Therefore the cash tax payable is expected to be relatively low compared to the quantum of the taxable gain.”