Yancoal says it has approval for Rio Tinto deal, while investor doubts linger

Chinese state-owned miner Yancoal claims to have cleared another hurdle in its bid for Rio Tinto coal assets in Australia.

Australia’s Foreign Investment Review Board (FIRB) has reportedly given approval for the US$2.45 billion deal, despite the ongoing political controversy about Chinese government ownership of Australian critical infrastructure.

If successful, the deal would make Yancoal the largest coal-only mining company in Australia, however, the company’s poor financials mean it is expected to struggle to raise the required equity.

Yancoal currently carries five times as much debt as its comparable competitors, and it has not posted a profit in the last four years. Since 2012, Yancoal investors have lost 17.7 cents for each dollar they have put into the company, following $1.3 billion of losses.

Previously, the company’s debt burden caused it to lose control of three New South Wales mines, resulting in hundreds of job losses.

Yancoal’s parent company, Yanzhou Coal has said it will provide $1 billion of the required funding, leaving Yancoal with $1.45 billion to raise. Mainstream banks have already ruled out participating in funding rounds of this kind, and major investors, conscious of the Yancoal’s weak balance sheet, are also steering clear.

In addition, several security analysts have warned that increased Chinese influence over Australian coal exports could have long-term geostrategic ramifications for the region, potentially threatening Japanese and Korean energy security.

China itself has confirmed that the Yancoal deal would give it a ‘big say’ in the price of Asia-Pacific coal.