Wood Mackenzie said the US$1.7 billion price tag was at a 41% premium to its valuation for Hail Creek. It assumed a zero valuation for the Valeria project.
The premium paid implied a long-term benchmark hard coking coal price of $146 per tonne and a benchmark thermal coal price of $83/t, signalling confidence in higher for longer prices.
The inclusion of Hail Creek is expected to boost Glencore's met coal output by 67% from 2017 to 15 million tonnes in 2019, although this volume excluded the impact of not-yet-finalised deals relating to its Coal & Allied 49% Hunter Valley Operations acquisition and the sale of Tahmoor in New South Wales to the GFG Alliance.
Hail Creek produced 5.25 million tonnes of hard coking coal in 2017, of which Rio's share was 4.3Mt.
It pointed out that the company's hard coking coal production profile had been declining after the closure of the Oaky No. 1 mine last year, the winding down of coking coal production from the Newlands Coal assets in Queensland and the sale of Tahmoor.
The acquisition would also add marginal volume to the miner's Australian thermal coal output, with Hail Creek producing a high-ash (25%) product.
Thermal coal production from Hail Creek in 2017 was 4.1Mt, of which Rio's share was 3.4Mt.
"It also offers a longer-term opportunity to develop Valeria as a replacement for its Clermont thermal coal mine which is estimated to close in 2026," WoodMac said.
The consultancy noted the deal would increase Glencore's margins, with it estimating a total average post-deal margin of $64/t for met coal and $37/t for thermal coal in 2018.
"Even though we estimate Hail Creek to lie within the fourth quartile of the seaborne metallurgical coal cost curve, it attracts a very good return due to its high quality," it said.
WoodMac pointed out that the mine's high-ash thermal coal attracted a healthy margin because it only had processing and re-handling costs, with no mining costs associated with this product, which was derived from coarse plant rejects.
"The value of the assets is highly sensitive to price and this represents both the main upside and downside risk for Glencore," WoodMac said.