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UPDATE 1-Rio picks China-backed Yancoal over Glencore for coal sale

* Rio sticks with Yancoal over Glencore for coal mine sale

* Yancoal tops Glencore bid with $2.69 bln offer

* Rio CEO says Yancoal bid offers "compelling value" (Adds Yancoal quotes, Glencore details)

SYDNEY/LONDON, June 26 (Reuters) - Rio Tinto on Monday confirmed Yancoal Australia 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.

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 for our Australian thermal coal assets," 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 out Yancoal's earlier offer of $2.45 billion.

Glencore said on Friday its offer would lapse if Rio Tinto did not declare it to be superior by June 26.

Glencore declined immediate 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.

Any transaction with Glencore is unlikely to be completed until the first half of 2018 at the earliest, Rio said.

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 lower-polluting thermal coal to power generators in Japan, Taiwan and South Korea that are under pressure to become more efficient and to lower emissions.

"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 in support of Rio Tintos global strategic growth," Yancoal Chairman Xiyong Li said in a statement.

Yancoal, though based in Australia, is 78 percent owned by China's Yanzhou Coal Mining Company.

(Reporting by James Regan in SYDNEY and Barbar Lewis in LONDON; Editing by Tom Hogue)