Rio Tinto is selling its interest in an Australian coal mine for A$1 (US$0.75) — the latest transaction in the troubled coal sector agreed for less than the price of a cup of coffee.
The Anglo-Australian miner said on Monday it was in discussions with Terracom, an Australia-listed junior miner, over its joint venture interest in the mothballed Blair Athol thermal coal mine in Queensland.
The proposed sale follows Rio’s decision to relinquish its stake in a Papua New Guinea copper mine last week, as part of a strategy of shedding non-core assets being pursued by Jean-Sébastien Jacques, Rio’s new chief executive.
“Coal is not material to the earnings for many big miners and they can cop a bit of [public relations] flak for retaining coal assets,” said Mathew Hodge, analyst at Morningstar. “There is also an environmental liability attached to owning coal mines.”
Shares in Rio rose 3.7 per cent in Australia on Monday in a broader market that was up 0.7 per cent.
Thermal coal prices have fallen from a peak of about US$180 per tonne in 2008 to just over US$50 due to a supply glut caused by overproduction and a drop in Chinese demand. According to some commodities analysts, the thermal coal export market is in structural decline because of regulatory efforts to tackle global warming.
The downtown is part of a broad global commodities slump that, according to Mr Jacques, shows no signs of easing.
Last year, Brazil’s Vale and Japan’s Sumitomo Corp sold the Isaac Plains coal mine in Queensland for A$1 — a project that was valued at more than US$600m three years earlier.
In April, Anglo American sold its 70 per cent stake in the Foxleigh coking coal mine for an undisclosed sum to Taurus Funds Management and is also offloading its other Australian coal mines.
In some instances owners of coal mines are required to pay considerable sums to the purchasers to cover the cost of cleaning up or rehabilitating the mine sites.
For example, Terracom said it would receive A$80m from Blair Athol’s joint venture owners, which include Rio and two Japanese utilities, to meet the rehabilitation costs of the mine. This financial assurance is held as cash by the regulatory authorities.
Smaller resources companies have been more willing to take a punt on thermal coal, particularly when the purchase price of such assets is so low. They have been heartened by a modest rise in the prices of Australian coal shipped from Newcastle Port over the past three months.
However, critics have warned that large miners selling mines to minnows with weaker balance sheets could leave taxpayers exposed to mine clean-upcosts.
“There is a very real risk to Australian taxpayers when large diversified miners sell distressed assets to small companies,” said Richard Denniss, chief economist at the Australian Institute, a think-tank.
He said the bonds provided to state governments to clean up mine sites often did not cover the total cost. There are currently 50,000 abandoned mines in Australia, and it would require tens of billions of dollars to rehabilitate the land, analysts say.
Terracom said on Monday it planned to restart mining at the Blair Athol mine in the fourth quarter at a rate of 2m tonnes per year. Some 158m tonnes of coking coal were exported last year from Newcastle port, which is one of the world’s largest.
Rio shut down Blair Athol in 2012 as coal prices slumped.
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