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.