Posted June 26, 2017 11:51:52

Photo: Rio Tinto is considering whether to accept Glencore's or China-based Yancoal's offer to purchase its Hunter Valley operations. (ABC News: Glyn Jones)

Rio Tinto is currently in a dilemma on who it should sell its Hunter Valley mines to - the Swiss or the Chinese.

Late on Friday, Swiss-based company Glencore upped its bid to more than $3.5 billion (US$2.685 billion) for the purchase of Rio's subsidiary, Coal & Allied Industries Limited.

The assets on the block are Rio's Hunter Valley operations - the Warkworth/Mount Thorley thermal and semi-soft coking coal mines and a major stake in the Port Waratah coal loading facility in Newcastle.

Glencore said its latest offer is around $297 million ($US225 million) greater than Yancoal's proposal.

"We believe the Glencore offer satisfies the criteria for a 'superior proposal': it delivers substantially greater value to Rio Tinto shareholders and low deal completion risk," Glencore said in a statement.

The deal is subject to regulatory approvals, and Glencore has demonstrated its confidence in clearing them by putting down a $225 million deposit, which it will forfeit if the transaction does not go ahead.

However, the complication is that if Rio accepts Glencore's higher offer it runs the risk of upsetting the world's second largest economy and its biggest customer.

Relations with China have been somewhat uncomfortable since Rio pulled out of a $24.3 billion deal with Chinese state-owned miner Chinalco in 2009.

Within one year, Rio's former head of iron ore in China, Stern Hu, was jailed for ten years for corruption and industrial espionage.

Rio's board is currently considering its next steps, and plans to provide an update before its general meeting in London on Tuesday.

If Rio's board decides that Glencore's latest offer is the best deal and in the best interests of shareholders, then the general meeting will be adjourned.

This will then trigger a matching rights process, in which Yancoal will have two business days to present a better counter-offer.

The shareholder meeting could also be adjourned if Rio's board needs further time to consider Glencore's proposal.

Alternatively, if Rio rejects Glencore's latest offer, then the meeting will proceed as planned on Tuesday and shareholders will vote on the Yancoal deal.

Rio Tinto's Australian shares were trading 1.17 per cent higher at $59.52 at 11:05am (AEST).

Topics: mining-industry, coal, company-news, business-economics-and-finance, takeovers, australia