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Glencore, Sumitomo to Spend $1 Billion on Australian Coal

Glencore Xstrata Plc (GLEN) and Sumitomo Corp. (8053) will pay $1.02 billion for a stake in Australia’s third-largest thermal-coal mine as demand from power producers climbs.

The companies will acquire 50.1 percent of the Clermont mine in Queensland state from Rio Tinto Group, Tokyo-based Sumitomo said today in a statement. Each will own 25.05 percent, with Glencore operating the asset and marketing the production.

Coal prices in Asia are poised to rally after the worst quarter in four years as Chinese demand increases and Australia curtails output, according to Morgan Stanley and CIMB Group Holdings Bhd. (CIMB) Japan’s utilities are also boosting coal purchases in the absence of atomic power generation after the country’s 50 reactors were switched off following the 2011 Fukushima crisis.

The deal allows the partners to maintain stable coal supplies to the Japanese market as well as the rest of Asia as the region’s economy grows, Sumitomo said in the statement. The company expects thermal-coal prices to advance in the medium to long term, and sees the Clermont operation as having the quality and size to compete in Asian markets.

Glencore, the world’s biggest exporter of power-station coal, has interests in about 35 coal mines in Australia, Africa and Colombia, accounting for about 10 percent of global seaborne supplies. The Clermont project produces 12 million metric tons of the fuel a year, according to Sumitomo.

Expand Relationship

“This investment epitomizes our focus on identifying high-quality assets that complement our existing operations and marketing capabilities,” Peter Freyberg, who runs Glencore’s coal business, said in the statement. “We will seek to further expand our relationship with Sumitomo where there are mutually beneficial opportunities.”

Australia & New Zealand Banking Group Ltd. (ANZ) will provide the partners with half the funding for the acquisition through debt, with both companies contributing equally to financing the outstanding cost, said Sumitomo, Japan’s fourth-largest trading company.

Deutsche Bank AG advised Rio Tinto on the sale.

Rio dropped 0.4 percent to 3,222.5 pence by the close in London. Glencore advanced 0.7 percent to 342.5 pence. Sumitomo fell 2.1 percent to 1,280 yen in Tokyo.

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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