Coal exit could broaden Rio investor base

Rio Tinto could launch a buyback after the mining giant sold its last Australian coal assets, while environmentally aware investors might now get on board.

Rio Tinto has sold its 80 per cent stake in Queensland's Kestrel mine for $2.25 billion. (AAP)

Rio Tinto's decision to exit Australian coal should be good news for environmentally conscientious investors as well as current shareholders.

Analysts expect the mining giant to redistribute a large slice of the $4.15 billion it has generated in the past week by selling its last remaining Australian coal assets, most likely through a buyback.

RBC Capital Markets' Tyler Broda said becoming the only major without coal assets would be "certainly helpful" to Rio Tinto in attracting green investors and maintaining flexibility for future asset purchases.

"We view Rio's execution on its exit from coal, at least in a cyclical context, very positively," Mr Broda said.

Rio on Wednesday agreed to sell its 80 per cent stake in Queensland's Kestrel underground mine to private equity manager EMR Capital and Indonesian coal firm Adaro for $2.25 billion.

The move followed last week's $1.7 billion sale of two Queensland coal projects to Glencore and a $200 million stake in an undeveloped project to Whitehaven Coal.

UBS analyst Glyn Lawcock has tipped a buyback once the sales are completed in the second half of 2018.

"Management indicated with FY17 results that there is no need to further reduce net debt, mergers and aquisitions are too expensive, and capex will remain $5.5 billion and $6.0 billion until 2020," Mr Lawcock said.

"As a result, we expect proceeds (when received) to be returned to shareholders via an on- and off-market buybacks."

Rio Tinto last year used the proceeds from the sale of its Coal & Allied Industries operations in NSW to fund a $2.5 billion buyback.