Rio, Glencore in talks over Australian coal assets: sources

Wed Jun 12, 2013 6:44am EDT
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By Clara Ferreira-Marques

LONDON (Reuters) - Miners Rio Tinto (RIO.AX: Quote) (RIO.L: Quote) and Glencore Xstrata (GLEN.L: Quote) have held early-stage talks to consider a plan that could combine thermal coal assets in Australia as they battle low prices and high costs, two sources familiar with the plan said.

Benchmark coal prices touched three-year lows last year and have languished below $100 a metric ton (1.1023 tons) since May 2012, even as labor and other costs soar in Australia. Both Rio and Glencore have large thermal coal mines in the Hunter Valley region of New South Wales.

"It makes a lot of sense. Both parties think the intermediate outlook looks challenging," one of the sources said on Tuesday, cautioning talks were at a very early stage.

"It is something that has logic, but organizationally, Rio may not quite be ready."

Both Rio and Glencore declined to comment for this story.

A coal joint venture would help the companies reduce their workforce and avoid costlier underground operations, but these savings would do little to offset the increase in costs which is partly due to the strong Australian dollar.

RBC Capital Markets, in a report issued on Wednesday, said Rio Tinto Coal Australia's unit costs have more than quadrupled to $133 a metric ton since 2005, with about a third of the increase due to the rise in the Australian dollar.

Combining Rio and Glencore's port and rail capacity could also raise competition concerns, said Andrew Harrington, an analyst at Patersons Securities. Antitrust authorities in China took a dim view when Rio and rival BHP Billiton (BHP.AX: Quote) (BLT.L: Quote) mulled a similar iron ore joint venture.   Continued...

A woman runs past the reception desk of the Rio Tinto Limited Shanghai Representative Office in Shanghai March 22, 2010. REUTERS/Stringer