GLENCORE PLC 
SYDNEY/LONDON (Reuters) - Rio Tinto (>> Rio Tinto Limited) (>> Rio Tinto) on Monday confirmed Yancoal Australia (>> Yancoal Australia Ltd) as the preferred buyer for its Australian Coal & Allied unit after the China-backed company added an eleventh-hour sweetener to top a rival bid from Glencore (>> Glencore).
Rio's mines in Australia's Hunter Valley region are attractive to both Glencore and China because the quality of their coal means it is likely to continue to be burnt even as concerns about emissions deter generators from using poorer quality coal, which is the most polluting of all.
Yancoal increased its offer to $2.69 billion from $2.45 billion, adding $240 million in unconditional guaranteed royalty payments to a cash offer of $2.45 billion.
"The revised offer from Yancoal of $2.69 billion offers compelling value to our shareholders," Rio Tinto Chief Executive Jean-Sebastien Jacques said in a statement.
Glencore on Friday had raised its offer to $2.675 billion in cash, looking to beat Yancoal's earlier offer of $2.45 billion.
Glencore said its bid would lapse if Rio Tinto did not declare it to be superior by June 26.
On Monday, it declined comment on Rio Tinto's decision to stick with Yancoal.
Rio Tinto said Yancoal offered a faster and more certain timetable, with the deal likely to be wrapped up during the third quarter of 2017, compared with the first half of 2018 at the earliest for the Glencore deal.
Yancoal also increased its termination fee, in the event a deal is not completed, to $225 million from $100 million.
"Yancoal continues to provide Rio Tinto with the certainty of approvals and funding required to facilitate the efficient and timely sale of the Coal & Allied assets," Yancoal Chairman Xiyong Li said in a statement.
Yancoal, though based in Australia, is 78 percent owned by China's Yanzhou Coal Mining Company.
The sale includes a major stake in the Port Waratah coal-loading facility in Newcastle port, from where most of Australia's thermal coal departs for overseas markets.
Both Glencore and Yancoal want to buy Rio Tinto's mines to operate alongside existing operations, looking to sell high quality thermal coal to power generators in Japan, Taiwan and South Korea that are under pressure to become more efficient and to lower emissions.
In raising its offer last week, Glencore said it would sell assets to ensure its debt level remained modest.
Analyst Edward Sterck of BMO Capital Markets said if Glencore's higher bid had been accepted, it could reduce the company's flexibility to pursue its goal of expanding its agriculture business.
Rio Tinto will now hold shareholder meetings on Tuesday in London and on Thursday in Sydney to allow shareholders to vote on the deal.
Glencore's share price rose 0.5 percent by 1325 GMT, while Rio rose 1 percent.
(Reporting by James Regan in SYDNEY and Barbara Lewis in LONDON; Editing by Tom Hogue and Adrian Croft)
By James Regan and Barbara Lewis
