Yancoal deal threatened by falling coal price

Chinese-owned Yancoal’s attempt to buy Rio Tinto’s Hunter Valley assets could be in doubt because of the falling price of coal, experts have suggested.

Coal stocks have plummeted following a decision by China not to reinstate the mine production limits that last year prompted a huge spike in coal prices.

The National Development and Reform Commission (NDRC), China’s top economic planning agency, said that it would not force large-scale production cuts in the coming year if coal prices stayed in a “reasonable range”.

Yancoal will in the coming months attempt to raise billions to finance its $3.2 billion ($US2.45 billion) purchase of Rio’s Hunter Valley coal assets.

Experts have indicated that the falling price of coal could have an impact on the Chinese state-owned firm’s ability to raise the necessary money for the deal.

According to reports, Yancoal’s agreement gives it the right to back out of the deal if there is a “material adverse change event” which could lead to a reduction in the market value of Rio’s assets by $US250 million or more.

In early 2016 China imposed a 276-day a year production cap on domestic coal mines in a bid to stop the oversupply in the sector.

It prompted a global coal shortage and saw the price of thermal coal more than double.