* Rio Tinto says to hold on to sale proceeds
* Says working on sale of remaining Kestrel coal mine
* Glencore consolidating in coal as Rio exits
* Rio Tinto shares rise 0.9 pct, Glencore slips (Adds Rio Tinto CEO comments, share prices)
By Tom Westbrook
SYDNEY, March 20 (Reuters) - Glencore is buying Rio Tinto's Hail Creek coal mine and the Valeria coal project in Australia for $1.7 billion, tightening the Swiss trading and mining giant's grip on coal as its rivals exit the industry.
The acquisition, announced by both companies on Tuesday, follows Glencore's purchase of half of Rio Tinto's Hunter Valley coal operations, also in Australia, for $1.1 billion last year in a deal with China's Yancoal Australia Ltd.
Glencore is already the world's biggest exporter of thermal coal used for power stations, and Hail Creek will give it a bigger stake in metallurgical coal used for steelmaking.
"You've got one of the few big companies, in Glencore, that is both willing and able and clearly likes coal strategically and has been acquiring these assets," said Paul Gait, an analyst at Bernstein in London.
The sale consists of Rio's 82 percent interest in the Hail Creek operating mine and its 71.2 percent interest in the Valeria project, the company said in a statement.
Rio Tinto made a strategic decision in 2017 to exit coal and focus on growth in iron ore, copper and its aluminium division.
On Tuesday it said it was still looking to sell its remaining Australian coal assets - the Kestrel coking coal mine and the Winchester South development project. Investors had expected the two mines and projects to be sold as a package.
"The best option to extract value for our shareholders is to go in a piecemeal approach," Rio Chief Executive Jean-Sébastien Jacques told reporters after a business event in Melbourne.
Analysts said the price for Hail Creek and Valeria looked good for Rio Tinto while not too expensive for Glencore.
"Given we all expected a $2 billion to $2.5 billion number for Hail Creek plus Kestrel and the other stuff, it's a pretty big number," said Shaw and Partners analyst Peter O'Connor in Sydney.
Rio's London-listed shares rose 0.7 percent, while Glencore's were flat.
Gait said that he was bullish on metallurgical coal prices, now above $200 a tonne, which would help justify the price Glencore agreed to pay.
"Glencore clearly have synergies in terms of both the operating and, physically, the marketing of these assets and when I look at the price that they've acquired these things for, it doesn't seem to me to be exorbitant," he said.
Rio Tinto said it planned to use the sale proceeds "for general corporate purposes", however Jacques did not rule out returning the cash to shareholders in future.
"You shouldn't draw any conclusions. The next time we review it will be in August," he told reporters, referring to the company's next moves on capital management.
UBS has forecast that the sale of Hail Creek and Kestrel could help Rio hand back more than $9 billion to shareholders over the next 12 months.
The Hail Creek deal is subject to regulatory approvals and is expected to be completed in the second half of 2018, Rio said.
The remaining 18 percent of Hail Creek is owned by units of Nippon Steel and Sumitomo Metal Corp, Marubeni Corp and Sumitomo Corp, which all have rights to sell their stakes to Glencore, which it said in a statement would cost up to $340 million.
Glencore declined to comment further on the acquisition.
Nippon Steel declined to comment on its intentions. Marubeni and Sumitomo had no immediate comment.
Bidders in the running for Kestrel include private equity firm EMR Capital with Indonesia's Adaro Energy, Australia's Whitehaven Coal and a consortium led by Apollo Global Management, Reuters reported earlier this month.
Reporting by Tom Westbrook; Additional reporting by Chris Thomas in BENGALURU, Melanie Burton in MELBOURNE, and Yuka Obayashi in TOKYO; Writing by Sonali Paul; Editing by Christian Schmollinger and Susan Fenton