Yancoal could save up to $85M in synergies with C&A

SITE, infrastructure and procurement efficiencies between Yancoal and Coal & Allied’s Hunter Valley coal operations in New South Wales – which it is buying from Rio Tinto for US$2.65 billion – will save between $60 million and $85 million, Yancoal believes.
Yancoal could save up to $85M in synergies with C&A Yancoal could save up to $85M in synergies with C&A Yancoal could save up to $85M in synergies with C&A Yancoal could save up to $85M in synergies with C&A Yancoal could save up to $85M in synergies with C&A

The Mt Thorley Warkworth coal mine in NSW, which was part of the Coal & Allied.

Lou Caruana

These efficiencies include optimisation of equipment usage across all sites; productivity improvements across the mining value chain from adoption of best practice mining methodologies; and cost savings through utilisation of enhanced purchasing power and repricing of contracts.

Yancoal said in an investor’s presentation that the Coal & Allied acquisition would unlock between $120 million and $145 million of potential operational synergies annually.

Of that, the company estimates that it would save $35 million through the ability to operate without duplication of corporate overheads.

It would save another $25 million through coal blending and marketing and the ability to blend and better manage coal quality specifications to realise a higher overall coal product price.

The Chinese-controlled Yancoal is seeking $2.5 billion through an equity raising to pay for the Coal & Allied acquisition. 

The company’s major shareholder, Chinese giant Yanzhou, will contribute $1 billion through the offer.  There is also substantial incremental value potential from a Yancoal and Glencore Partnership in the Hunter Valley.

“[There is]potential significant increase in marketable reserves, mine life and reduced strip ratio / costs by mining coal from barriers between mines,” Yancoal said.

There is also equipment optimisation and economies of scale benefits across various Coal & Allied and Glencore sites.

Glencore secured an agreement with Yancoal to acquire a 49% stake in the Hunter Valley Operations coal mine and will form a joint venture with Yancoal following Yancoal’s acquisition of Coal & Allied. 

Glencore will pay $1.13 billion in cash plus a 27.9% share of $240 million non-contingent royalties over five years and 49% of price contingent royalties payable by Yancoal to Rio Tinto on production from HVO.

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