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Business deals

Indonesia's Adaro Energy to buy Rio Tinto coal mine for $2.25bn

Expansion of coking coal operations to offset government cap impact

A coal truck passes others inside coal giant Rio Tinto's Hunter Valley operations in Lemington, north of Sydney, Australia.   © Reuters

JAKARTA -- Major Indonesian coal miner Adaro Energy has signed a binding agreement to acquire Rio Tinto's entire stake in the Kestrel coking coal mine in Australia for $2.25 billion.

In a move that will allow the company to further diversify its portfolio away from power plant coals, Adaro will form a consortium with private equity manager EMR Capital to buy Rio Tinto's 80% stake in the pit.

The Kestrel mine, located in Queensland, mainly produces coking coal used for making steel. The consortium will jointly manage and operate the mine.

"The acquisition of the Kestrel mine is a significant milestone in Adaro's strategic expansion of its portfolio of metallurgical coal as well as one of its largest investments outside of Indonesia," said Adaro CEO Garibaldi Thohir.

The announcement comes as Indonesian miners feel the effects of a government decision in early March to fix the price of power plant coal sold domestically at $70 per ton until the end of 2019.

The policy has been implemented in a bid to keep electricity tariffs low in the face of a price rally on coal, which accounts for half of Indonesia's total energy mix. The benchmark domestic price hit $101.86 per ton in March, its highest level since May 2012.

By increasing its coking coal operations, Adaro hopes to offset the consequences of the government cap.

This is the second coking coal mine acquired by Adaro after it took over a mine in Kalimantan on the island of Borneo from its Australian business partner BHP Billiton as part of a $120 million deal in 2016.

Erwida Maulia, Nikkei staff writer in Jakarta contributed to this story.

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