Glencore looks well-placed to snatch Rio coal unit

The state-controlled, Australian-listed Yancoal has been trying to acquire Rio's Australian unit, Coal & Allied Industries, since January. But it has been slow work solidifying the financing for its $2.5 billion bid. That delay, plus the lack of immediate approval from China's central government, signalled weakness. Yancoal responded on Sunday by announcing it has received regulatory approval for the deal, but by then it was too late: Glencore had already pounced.

Coal & Allied is a tasty morsel. Its mines produce premium thermal coal, most of which is exported to power stations in Japan at an above-average price around $85 per tonne. Yet cash costs, even for its less efficient mines outside the Hunter Valley, are only about $60 to $65 per tonne, according to Jefferies estimates. It helps too, that the mines are close to existing Glencore properties. There will be some synergies too. These will not be huge - Jefferies estimates these at less than $50 million per year - but that does mean Glencore can afford to pay more and still create value.

This is just the latest acquisitive move by a newly reinvigorated Glencore, which has taken a stake in Russia's Rosneft, bought out a partner in the Democratic Republic of Congo and last month it made an informal approach to Bunge, the US listed grain trader. Yet it is telling that Glencore did not immediately enter the fray in January, though it has coveted the mines next door for some time. It can be a bruising experience to get into a bidding war with a state-backed Chinese player, especially if the counter-bidder also has extensive business interests in China.

Should Rio's board recommend Glencore's offer, Yancoal has the right to make a fresh bid of its own. So Rio Tinto could yet secure a higher price. Yet Yancoal's progress to date suggests Glencore may be fighting a paper tiger.