The Chinese government is about to become Australia's largest pure-play coal miner

A coal fired plant on Shazai Island in Guangzhou, China. Kevin Frayer/Getty Images

The Chinese state-controlled company Yancoal is becoming the largest pure-play coal miners in Australia by buying Rio Tinto’s mines in the Hunter Valley for $US2.45 billion ($A3.2 billion).

The sale by Rio Tinto of its subsidiary Coal & Allied Industries includes an initial $US1.95 billion ($A2.57 billion) cash payment and $US500 million ($A659 million) in annual installments of $100 million ($A131 million) over five years.

Coal & Allied owns and operates the Hunter Valley Operations and Mt Thorley Warkworth coal mines in the Hunter Valley, NSW.

Yancoal CEO Reinhold Schmidt says the deal will make the company the largest pure-play coal producer in Australia.

“The transaction represents a significant expansion of Yancoal’s operational portfolio, providing Yancoal shareholders with exposure to world class thermal and semi-soft coking coal mines,” he says.

“Yancoal has successfully restructured its operations and reduced costs throughout the past three years and established itself as a leading coal producer committed to investing in the Australian resources sector.”

J-S Jacques, the CEO of Rio Tinto, says the sale delivers outstanding value for shareholders.

He says the sale of the coal arm is consistent with the strategy of reshaping the company to ensure the most effective use of capital.

“The sale of Coal & Allied represents the culmination of an extensive assessment of all strategic options for these assets,” he says.

After completion of the sale, Rio Tinto will also be entitled to a quarterly coal price linked royalty calculated as $US2 a tonne.

Rio Tinto has now announced or completed at least $US7.7 billion ($A10 billion) of divestments since 2013.

The deal is subject to approvals from the Australian Government, Chinese regulatory agencies and the NSW Government.

Yancoal Australia, which is listed on the ASX, operates a portfolio of seven mines and a suite of exploration assets and infrastructure shareholdings across New South Wales, Queensland and Western Australia.

It is owned 78% by Yanzhou Coal Mining Company Limited, which is listed on the Hong Kong, Shanghai and New York Stock Exchanges.

Yanzhou is in turn 56% owned by Yankuang Group Company Limited, which is controlled by state-owned Assets Supervision and Administration Commission of Shandong Province in the People’s Republic of China.

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