X2 Said to Be Last Remaining Bidder for Rio Australia Mines

  • Mick Davis fund still interested after other bidders fall away
  • Rio Tinto assets adjoin Glencore's coal mines in the country

X2 Resources, the private-equity firm founded by former Xstrata Ltd. chief Mick Davis, has emerged as the last remaining bidder for control of two Rio Tinto Group coal mines in Australia, people with knowledge of the matter said.

X2 is progressing in negotiations with Rio as the other interested parties, including Glencore Plc and New Hope Corp., are no longer in talks to buy the assets in New South Wales state’s Hunter Valley region, according to the people. The mine stakes may fetch more than A$3 billion ($2.2 billion), one of the people said, asking not to be identified because the talks are private.

Rio Chief Executive Officer Sam Walsh has sold $4.5 billion of less-profitable assets since January 2013, reducing its coal portfolio amid falling prices in order to focus on larger iron ore and copper operations. Any deal would be the first purchase for Davis’s X2 fund since he raised several billion dollars from investors to pursue mining acquisitions.

New Hope, which agreed last month to buy Rio’s 40 percent stake in the Bengalla coal venture in Australia for $606 million, isn’t pursuing the other mines Rio is selling in the country, according to the people. Glencore, which lost as much as $14 billion in market value last month, is also no longer active in the Rio process as its focus has shifted away from acquisitions, the people said.

Hunter Valley

Rio could reach an agreement on the sale of the two mine stakes as early as year’s end, according to one person. Rio is still open to offers and it’s possible other suitors may yet emerge, another person said. 

Shares of Rio fell 0.7 percent at the close in Sydney on Monday. Representatives for X2, Rio, New Hope and Glencore declined to comment.

The two Rio mines--Hunter Valley Operations and Mount Thorley Warkworth--are near assets owned by Glencore. Hunter Valley Operations, which is part-owned by Japan’s Mitsubishi Corp., produced more than 11 million metric tons of thermal coal in 2013 and 2.6 million tons of semi-soft coking coal, according to Rio’s website.

Mount Thorley produced more than 2.3 million tons of thermal coal and 1.8 million tons of semi-soft coking coal that year, while Warkworth had more than 6.9 million tons of thermal coal output and more than 1.2 million tons of semi-soft coking coal.

Merger Approach

Glencore CEO Ivan Glasenberg said in March last year the company was exploring a potential deal with Rio for the mines, including forming a joint venture. No deal was agreed, and Rio revealed in October it had rejected a merger approach from the Swiss commodities trader that would have created the world’s largest miner.

Glencore and Sumitomo Corp. in 2013 agreed to pay $1.02 billion for 50.1 percent of Rio’s Clermont mine in Queensland state. In May, Rio sold its 50 percent holding in the Sengwa colliery in Zimbabwe to its former local unit, RioZim Ltd.

Coal is at eight-year lows amid an oversupply in the market and slowing demand in China, the biggest consumer. Australia’s Newcastle coal, an Asian benchmark, has tumbled to less than $54 a ton since surging above $136 a ton in early 2011.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.

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