Yancoal Settles for a Partnership with Glencore

On Thursday, Glencore plc [LON:GLEN] announced it had agreed to buy a 49% stake in coal mines in Australia’s Hunter Value. Glencore paid just over $1.38 billion for Rio Tinto Ltd’s [ASX:RIO] coal operations.

It’s a blow for Yancoal Australia Ltd [ASX:YAL], which also bid for the mines. Last month, Yancoal had been confirmed as the preferred bidder for the coal assets. Instead, they will now have Glencore as a joint-venture partner and retain their 51% holding of the operations.

As reported by The Australian Financial Review:

Glencore wants the assets that adjoin operations it owns in the Hunter Valley. It first tried to acquire Coal & Allied in 2015, when Rio Tinto made it clear that coal was no longer part of its growth strategy.

Analysts said Glencore planned to blend the HVO coal with coal from its existing operations to customise shipments to power-generating customers.

What now for Yancaols Share Price?

Yancoal will issue shares to raise their capital commitment to the Rio deal. As part of the agreement, Glencore will commit to around US$300 million worth of Yancoal shares.

In the past month, Yancoal shareholders have seen a bump in their holdings. From 29 June to now, Yancoal is up 44.4% — not bad for a month’s time.

Yet right now might not be the best time to get in. With more shares to be issued and a lack of profitability, you risk being diluted with the prospect of earnings in the future. I’d suggest you watch this one from the sidelines or take a look at some other opportunities within the resource sector.


Härje Ronngard,

Junior Analyst, Money Morning

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