Rio Tinto to sell Hail Creek coal mine, project to Glencore for $1.7 billion

By Tom Westbrook

SYDNEY (Reuters) - Rio Tinto said on Tuesday it will sell its Hail Creek coal mine and the Valeria coal project in Australia to Glencore for $1.7 billion, tightening the Swiss trading and mining giant's grip on coal as its rivals exit the industry.

Glencore's move follows its acquisition of half of Rio Tinto's Hunter Valley coal operations, also in Australia, for $1.1 billion in a deal with China's Yancoal Australia Ltd last year.

Not only is Glencore the world's biggest exporter of thermal coal used for power stations, but Hail Creek gives it a bigger stake in metallurgical coal used for steel-making.

"You've got one of the few big companies, in Glencore, that is both willing and able and clearly likes coal strategically and has been acquiring these assets," said Paul Gait, an analyst at Bernstein in London.

The sale consists of Rio's 82 percent interest in the Hail Creek operating mine and its 71.2 percent interest in the Valeria project, the company said in a statement.

Analysts said the price looked good for Rio Tinto but not too expensive for Glencore.

"Given we all expected a $2 billion to $2.5 billion number for Hail Creek plus Kestrel and the other stuff, it's a pretty big number," said Shaw and Partners analyst Peter O'Connor in Sydney.

Rio Tinto said it planned to use the sale proceeds "for general corporate purposes", potentially disappointing investors who were hoping the cash would be handed back to shareholders.

Gait said that he was bullish on metallurgical coal prices, now above $200 a tonne, which would help justify the price Glencore agreed to pay.

"Glencore clearly have synergies in terms of both the operating and, physically, the marketing of these assets and when I look at the price that they've acquired these things for, it doesn't seem to me to be exorbitant," he said.

Rio Tinto made a strategic decision in 2017 to exit coal and focus on growth in iron ore, copper and its aluminium division.

The deal is subject to regulatory approvals and is expected to be completed in the second half of 2018, Rio said.

The remaining 18 percent of Hail Creek is owned by units of Nippon Steel and Sumitomo Metal Corp, Marubeni Corp and Sumitomo Corp, which all have rights to sell their stakes to Glencore, which it said in a statement would cost up to $340 million.

Glencore declined to comment further on the acquisition.

Nippon Steel declined to comment on its intentions. Marubeni and Sumitomo had no immediate comment.

Rio Tinto is still looking to sell its remaining Australian coal assets -- the Kestrel coking coal mine and the Winchester South development project.

Bidders in the running include private equity firm EMR Capital with Indonesia's Adaro Energy, Australia's Whitehaven Coal and a consortium led by Apollo Global Management, Reuters reported earlier in March.

(Reporting by Tom Westbrook; Additional reporting by Chris Thomas in BENGALURU and Yuka Obayashi in TOKYO; Writing by Sonali Paul; Editing by Christian Schmollinger)