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Rio Tinto Will Reward Investors

Jul. 01, 2017 10:47 AM ETRio Tinto Group (RIO)5 Comments
Sarfaraz A. Khan profile picture
Sarfaraz A. Khan


  • Rio Tinto has decided to sell its Australian coal assets to Chinese buyers for $2.69 billion.
  • The sale should further solidify the company's financial health.
  • The company is now well positioned to return excess cash to shareholders by increasing dividends or ramping up buybacks.

Rio Tinto (NYSE:RIO), one of the world's largest diversified miners, has moved closer towards selling its Australian coal assets. The Anglo-Australian company looks well positioned to boost shareholder value in the short term. I believe this might be a good time to load up on this high-dividend stock.

Rio Tinto shareholders have recently given an overwhelming approval, with 97.2% votes, to sell a large chunk of the company's thermal coal assets, located in Australia's Hunter Valley, to Yancoal Australia (OTCPK:YACAF), a Chinese state-backed miner, for $2.45 billion in cash and $240 million in royalty payments.

Yancoal will get its hands on high-quality thermal coal, which is used in electricity generation. But the real beneficiary will be Rio Tinto which will be successful in unloading a major asset at a great price. Rio Tinto has been trying to sell its Australian thermal coal business, which was valued at around $2 billion by analysts, since at least 2015. The company was able to attract two major buyers – Yancoal and the commodities trader Glencore (OTCPK:GLCNF, OTCPK:GLNCY). A bidding war ensued which pushed the price to well over analysts' estimates. Rio Tinto ended up selling to the highest bidder Yancoal which not only offered $15 million more than Glencore but also promised to pay a $225 million break fee if the deal fell apart. Yancoal can also close the deal by as soon as 3Q17, which is sooner than the expected 1H18 closure with Glencore.

The transaction will finally bring an end to the uncertainty surrounding the fate of Rio Tinto's thermal coal business. In addition to this, the asset sale will further solidify the company's already strong financial health.

Last year, Rio Tinto managed to significantly improve its financial health by net debt (total debt minus cash reserves) falling to $9.59 billion from $13.78 billion at

This article was written by

Sarfaraz A. Khan profile picture
Hey there, I'm Sarfaraz A. Khan - a seasoned financial writer and investor with a passion for uncovering hidden gems. I have a deep understanding of fundamental analysis and I specialize in writing about mid-cap and small-cap companies that are poised for significant growth. My investment philosophy is heavily influenced by the strategies of legendary investors like Warren Buffett and Benjamin Graham. I look for investment opportunities in companies that have strong fundamentals and can grow substantially over the long-term. I'm not afraid to venture into other areas of the market either. While I primarily write about mid and small-cap stocks, I also delve into ETFs and economic trends occasionally. I always aim to provide a balanced view and discuss risk factors in my articles so investors can make better decisions. Although I've been away from Seeking Alpha for a while, I'm excited to get back to writing and sharing my expertise with the community. Moving forward, you can expect to see two to three articles a week from me. When I'm not analyzing stocks or writing about finance, I enjoy reading about history, religion, science, economy, and following the latest developments in the energy and technology sectors.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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