Chinese-controlled Yancoal Australia is in talks to buy Gloucester Coal, currently worth $1.4-billion (U.S.), to create Australia’s top independent coal miner, three sources familiar with the deal said Tuesday.
Gloucester confirmed it was in talks on a potential takeover, without naming its suitor, and requested a two-day trading halt on its shares pending an announcement on a deal.
Yancoal is looking to take over Gloucester to combine their nearby coal assets in New South Wales and Queensland, and to use it as a backdoor route for listing in Australia.
“They’re on an acquisition drive. Maybe they kill two birds with one stone,” said Andrew Harrington, an analyst at Patersons Securities, who values Gloucester at $1.9-billion (Australian).
A deal would be the latest in a slew of coal mergers and acquisitions in Australia as miners look to tap into strong Asian demand, particularly from top consumer China.
The Chinese group, a unit of Yanzhou Coal Mining Co. Ltd., was required to float at least 30 per cent of the Australian business on the local exchange by 2012 as a condition of its $3.3-billion (Australian) takeover of Felix Resources in 2009.
A takeover of Gloucester would give it a local listing without having to risk an initial public offering in a shaky market, where coal stocks in particular have been pummelled on worries about a global economic downturn.
Gloucester’s shares have tumbled 42 per cent this year to $7.03 (Australian), making it among the 30 worst performing stocks out of Australia’s 200 biggest companies.
Key to the deal will be Gloucester’s 64-per-cent owner, Hong Kong-based Noble Group, which has a track record of buying junior miners, helping to fund projects, then selling out.
Sources familiar with the talks played down reports of an offer as high as $2-billion (Australian) for Gloucester.
Patersons’ Mr. Harrington has a price target of $9.45 (Australian) per share on Gloucester. Yancoal was unlikely to pay that much, said one source, who declined to be named as the talks are confidential.
Noble Group, which tried to sell its stake in Gloucester last year to Macarthur Coal, had no comment on Yancoal’s approach to Gloucester. Macarthur was subsequently bought by top U.S. coal miner Peabody Energy for almost $5-billion.
Yancoal and Gloucester both have mines and projects in New South Wales and Queensland. Gloucester aims to expand production to 10 million tonnes a year by 2016, while Yancoal expects to produce 20 million tonnes a year by 2015.
That would put a combined group ahead of Whitehaven Coal, which last week announced a $2.5-billion takeover of Aston Resources, to create a company that would produce 25 million tonnes a year by 2016.
Yancoal is being advised by UBS and Citi, while Gloucester is being advised by Lazard.
Since taking over Felix Resources, Yancoal has bought Syntech Resources for $203-million (Australian) and is about to complete the $297-million (Australian) acquisition of Premier Coal from Wesfarmers.
It sought to buy Whitehaven Coal earlier this year, but the two were never able to agree on a price.
Yancoal’s move on Gloucester means the Chinese group will likely not be bidding for New Hope Coal, another Australian coal miner that is up for sale.
Earlier this month, parent Yanzhou Coal announced plans to issue up to $2.3-billion in bonds.
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