David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Rio Tinto and coal used to have such a bright future together.

Back in 2008, the Anglo-Australian miner's 13 pits produced about 153 million metric tons of thermal coal, the lower-quality stuff burned by power stations. Its energy division, which also includes a couple of uranium mines, accounted for $2.6 billion of net income, about 22 percent of the group total. 

Back to Black
Newcastle thermal coal price, ICE generic 1st future
Source: Bloomberg data

The energy unit has since sold or shuttered eight coal pits, and still managed to rack up a $210 million net loss last year. Private-equity firm X2 Resources is in talks about buying three of the five mines that remain, people familiar with the matter told Bloomberg's Brett Foley, Dinesh Nair and Thomas Biesheuvel last month. If those sales go ahead, a company that was formerly one of the world's biggest thermal coal producers will be reduced to shipping out a few hundred thousand tons a year as a by-product from two mines that mainly produce coking coal, a more profitable variety used in steelmaking.

The confusing thing for coal is that Rio Tinto's management keeps saying such nice things.

``Coal demand is not going to disappear," the company's copper and coal boss, Jean-Sébastien Jacques, told a Bloomberg Address in Sydney yesterday, pointing to the growing energy needs of China, India, and Southeast Asia. ``Our assets are absolutely world class."

Of course, every partner makes the odd insensitive remark. ``Today I've got better options than to spend money on coal,'' Jacques said later. That was a little hurtful. ``There is a future for coal. Now the question is, should it be Rio or not Rio" that owns the mines, he pondered. ``If you have a big checkbook, I'm more than happy to take your name."

What's a lump of carbon to make of all these mixed messages? It's probably past time to accept the facts. He's just not that into you:

Going Cold on Thermal
Rio Tinto quarterly coal output by type, % change from a year earlier
Source: Company reports
Note: Numbers are for Rio Tinto share of total mine production

If thermal coal is merely going through a cyclical downturn rather than a long-term decline, Jacques should have his own checkbook out. Australia is the world's second-largest coal exporter, with a strategic position close to the fast-growing economies of China, India and Southeast Asia. 

Thanks to the slump in coal prices, there are assets to be had for a fraction of what they'd have cost a few years ago. Peabody Energy, the U.S. producer that's struggling to chip away at its $6 billion debt mountain, sold its MDL-162 lease in Australia's Bowen Basin last year for about 19 percent of what it paid to acquire the lease four years earlier. Glencore, the biggest producer of export coal, has mines close to Rio Tinto's north of Sydney, and could certainly do with some cash.

Brass in Pocket
Rio Tinto net debt to Ebitda
Source: Bloomberg data

Rio Tinto is in a position to pick up some of these assets on the cheap if it really thinks it's in a long-term relationship with thermal coal. The company's net debt is less than a year's worth of Ebitda, so it could afford to borrow a bit more. The cost of insuring its U.S. dollar debt against non-payment with credit-default swaps stands at 169 basis points, compared with a median of 267 basis points in the global metals and mining industry, and 677 paid on the likes of Anglo American.

The fact that it's not doing any of this speaks volumes. So why all the happy noises? Well, a used car dealer doesn't list the flaws of all the models in the showroom, and mining executives are little different. Jacques has a couple of coal mines he might like to sell. His actions speak louder than his words.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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David Fickling in Sydney at

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Matthew Brooker at