Premium basic materials company, Rio Tinto plc RIO inked a binding agreement to sell Coal & Allied Industries Limited to Yancoal Australia Limited. The company stated that the move is in sync with its ongoing portfolio reshaping strategy and would likely deliver higher value to its shareholders in the near term.
Over the last one month, shares of this Zacks Rank #1 (Strong Buy) stock recorded a return of 19.88% – outperforming 14.45% return provided by the Zacks categorized Mining-Miscellaneous industry. Notably, the Zacks Consensus Estimate for the stock has been revised upwards for 2017, over the same frame.
Coal & Allied
Coal & Allied Industries Limited is a holding company of the thermal coal business of Rio Tinto, in the Hunter Valley area of New South Wales. Coal & Allied operates and owns numerous, multiple-seam open cut mines in the Hunter Valley region.
The net assets of the business (subject to the aforementioned sale agreement) had generated earnings before tax of $ 102 million at the end of 2015 and had a gross asset value of $ 1,895 million as of Jun 30, 2016.
Deal Specifics
Subject to customary completion amendments for net working capital and net debt, Rio Tinto will receive an initial cash payment of $ 1.95 billion from Yancoal Australia Limited. Notably, subsequent to the deal completion, the company is eligible to receive another $ 500-million gross amount, in the form of annualized installments of $ 100 million (each) over five years, from Yancoal Australia Limited.
However, prior to Feb 24, 2017, Yancoal Australia Limited is eligible to elect for alternative purchase price means, according to which, it would make a single cash payment of $ 2.35 billion to Rio Tinto against the business buyout.
In addition, the company would continue to benefit from the cashflow and earnings generated from the Coal & Allied business, till the completion of the transaction.
After the conclusion of the sale, Rio Tinto would continue to secure certain potential royalties from the divested business. Coal & Allied operations would continue to utilize Rio Tinto’s Marine freight services after the closure of the deal.
The agreement is currently subject to regulatory approvals and is likely to close by the second half of 2017.
Deal Insights
Rio Tinto has completed divestments worth $ 7.7 billion since 2013. The Coal & Allied business divestment deal has been inked by the company for reshaping its portfolio, in a bid to deploy capital in the most optimal way. Through effective utilization of productive capital, the company intends to acquire premium assets, maintain a robust balance sheet and generate higher cash flow in business. Through these means, the company plans to deliver superior returns to shareholders.
Key Picks
Some other favorably placed stocks within the industry are listed below:
BASF SE BASFY has an average earnings surprise of 34.34% for the last four quarters and currently sports a Zacks Rank #1 (Strong Buy) You can see the complete list of today’s Zacks #1 Rank stocks here .
AK Steel Holding Corporation AKS presently boasts a Zacks Rank #1 and has a whopping average earnings surprise of 170.80% for the past four quarters.
CF Industries Holdings, Inc. CF carries a Zacks Rank #2 (Buy) and has an average earnings surprise of 18.83% for the trailing four quarters.
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