Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto Report

Insight 25 January 2017

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Report summary

Yancoal and Rio Tinto announced January 24 they had entered into a binding agreement for Yancoal to buy Rio Tinto's NSW thermal and semi-soft coking coal producer, Coal and Allied. The deal is transformational for Yancoal, propelling it to become Australia's fourth largest coal producer. However nothing comes for free, and Yancoal have paid a significant premium to secure the assets, making it an attractive deal for Rio Tinto. The total upfront consideration of US$2.35 billion (assuming Yancoal elects to pay the entire amount upfront) represents a 60% premium to our valuation of US$1.46 billion. We estimate the deal was struck at an implied long-term benchmark thermal coal price of US$74/tonne and a hard coking coal price of US$124/tonne (flat real 2017 terms).

Overview
Deal summary
- Key facts
- Location map
Deal Analysis
- Summary valuation
- Valuation metrics
- Economic assumptions
Upside, risks, and strategic rationale
- Top 10 producers 2017 (pre and post deal, attributable)
- Yancoal and Coal and Allied margins 2017
- Valuation sensitivity

Tables and charts

This report includes the following images and tables:

Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto: Table 1
Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto: Image 1
Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto: Table 2

Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto: Table 3
Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto: Table 4
Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto: Image 2
Seaborne export thermal coal margins
Seaborne export metallurgical coal margins
Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto: Image 5

What's included

This report contains:

Costly but transformational Yancoal buys Coal and Allied from Rio Tinto.xls

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Costly but transformational: Yancoal buys Coal and Allied from Rio Tinto

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