Tuesday's agreement will see Yancoal take ownership of Rio's 67.6 per cent stake in the Hunter Valley Operations mining complex (HVO) in New South Wales as well as Rio's interests in the nearby Mt Thorley Warkworth mine.
Mt Thorley Warkworth is comprised of two open cut mines, with Rio owning 80 per cent of the Mt Thorley part and 56 per cent of the Warkworth mine.
The sales continue a divestment phase that has now seen Rio sell more than $US7 billion worth of assets since 2013.
The deal is a major statement of commitment to the Australian coal sector from Yancoal's ultimate parent, Chinese state-owned company Yankuang Group, given the massive losses Yancoal has endured since its boom time acquisitions of Felix Resources in 2009, Syntech Resources and Wesfarmers Premier Coal mine in 2011 and Gloucester Coal through a merger in 2012.
Yancoal is 78 per cent owned by Hong Kong listed Yanzhou Coal, which itself is 87.8 per cent owned by Yankuang.
Yancoal will pay $US1.95 billion upfront, and make a $US100 million installment in each of the subsequent five years.
The Chinese dominated company can get the asset for $US2.35 billion if it pays that full amount before February 24, 2017.
Yancoal has also agreed to buy the 32.4 per cent of Hunter Valley Operations that is currently held by Mitsubishi for a sum beyond the $US2.45 billion agreed with Rio.
Rio said it would continue to earn royalties from the sale for ten years if the thermal coal price was higher than $US75 per tonne, and Yancoal has agreed to use Rio Tinto's shipping subsidiary to ship certain coal cargoes.
Rio shareholders will get a chance to vote on the proposal between April and June. The deal is also subject to approval from Australian and Chinese government regulators, Yancoal shareholders and the New South Wales Government.
Yancoal can terminate the deal if it cannot source the funding, and in such a case would face a $23.5 million break fee.
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