Banks Muscle in on Rio Tinto’s Coal Assets

Trading giant Glencore is holding active and ongoing talks with Australian authorities over a potential takeover of Rio Tinto’s thermal coal mines in New South Wales, sources involved in the process told Master Investor this morning, as a battle for the assets intensifies. Glencore’s arch rival X2 Resources, the private equity vehicle led by former Xstrata boss Sir Mick Davis, is also reportedly in talks with Rio Tinto over the coal mines, promising a bidding battle that is expected to fetch $2bn to $4bn.

Glencore owns a string of neighbouring mines in Australia’s coal-rich Hunter Valley and has previously suggested that savings of at least $500m could be realised by coupling the operations. Negotiations between Rio and Glencore over a possible joint-venture broke down last year however, appearing to leave Rio’s door open to talks with Mick Davis. Sources currently working with Davis have told Master Investor that Glencore’s interest in the mines remains very much alive, claiming it is in active discussions with Australia’s Foreign Investment Review Board, the country’s competition authority known as FIRB.

“Glencore never stops talking to FIRB about those mines,” according to one source, who has worked with both Glencore and X2. “They’ve tried to get those assets and they have [messed] it up twice.”

Sources connected to Glencore have meanwhile confirmed to Master Investor that the company sees itself as the natural operator of Rio’s coal assets, which are marginal to loss-making at current thermal coal prices, but query whether X2 has a seat at the table. The claims and counter-claims show the strength of the vested interests involved, as well as the underlying competition between Glencore and Davis, who was elbowed out of the group in 2013.

Glencore is already the world’s largest thermal coal exporter, having swallowed Xstrata two years ago, but Davis is equally familiar with the Hunter Valley, having grown Xstrata’s coal portfolio from scratch through a string of acquisitions before the financial crisis. Investment banks are meanwhile muscling in on the act, suggesting an imminent end-game. Rio Tinto has hired Deutsche Bank to help manage the sale, whilst X2 is rumoured to have appointed Goldman Sachs in Australia and London.

Banks are believed to be vying for an advisory role with Glencore.