Rio Tinto confirms Yancoal as preferred buyer of thermal coal assets

Rio Tinto has confirmed its recommendation that shareholders vote in favour of the sale of its subsidiary Coal & Allied Industries to Yancoal Australia.

The statement came as Yancoal upped its offer on Sunday following a sweetened bid from Glencore earlier in the week.

Glencore increased its bid to $2.68bn in cash plus a coal price-linked royalty from a previous offer of $2.55bn. Meanwhile, Yancoal's latest offer over the weekend includes a total consideration of $2.69bn, comprising $2.45bn in cash payable in full on completion, as well as $240m via unconditional guaranteed royalty payments, $200m of which will be received before the end of 2018.

Chief executive Jean-Sebastien Jacques said: "The revised offer from Yancoal of $2.69bn offers compelling value to our shareholders for our Australian thermal coal assets. This sale process has been in progress for a long period of time and we believe it is in the best interests of our shareholders to take the greater certainty of Yancoal's strong proposal."

Rio said the Yancoal offer has a greater level of completion certainty, with all regulatory approvals received or waived. In addition, there is improved downside protection offered by Yancoal, with a break fee of $225m comprising a cash deposit by Yankuang and an unconditional bank guarantee.

It also offers a faster and more certain timetable, with the deal expected to complete during the third quarter of this year, whereas any transaction with Glencore is unlikely to complete until the first half of next year at the earlier. Given the uncertainty of receipt of certain cash flows under Glencore's revised terms, the Yancoal offer presents greater net present value, Rio added.

At 1030 BST, Rio shares were up 0.9% to 3,079p.