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coalJohn Lehmann/The Globe and Mail

Takeover deals in the B.C. coal sector could heat up as demand for steelmaking coal in Asia continues and flooding in Australia puts millions of tonnes of production out of commission.

In an analyst report Thursday, Scotia Capital said Chinese company Winsway Coking Coal Ltd. and Japanese trading house Marubeni Corp., which recently inked a $1-billion deal for Grande Cache Coal , as well as others may be on the hunt.

"We expect that one or more of these large producers will look to increase reserves and production from the region," Przybylowski and Tkachuk-Tremblay wrote in a note to clients.

"We would also consider steel producers or other global trading houses as potential acquirers."

Canada's largest steeelmaking coal producer, Vancouver-based Teck Resources is already 20 per cent owned by a Chinese investment fund. Teck operates a number of mines in B.C. and is a key supplier to the Asian steel industry.

Marubeni has said that the $1-billion deal to buy Grande Cache Coal could be used by the Japanese company as a platform to develop a future coal business in Canada.

In addition to Winsway and Marubeni, likely buyers include Anglo American, Xstrata and Canadian Dehua, Scotia Capital said.

The bank also identified several junior coal companies as possible targets including Colonial Coal , Cardero Resource , and Fortune Minerals .

On Thursday, Cardero signed a deal with to acquire the Trefi metallurgical coal project, located approximately 30 kilometres southeast of Chetwynd, B.C., from Anglo Pacific Group PLC.

Under the deal, Cardero will pay $3.5-million in cash, 500,000 shares and warrants to buy another one million shares at a price of $1.40 per share for 18 months after closing in exchange for an option for a 50 per cent stake in Trefi.

The company will pay an additional $5-million and one million shares for the remaining stake once a bankable feasibility study is complete and Cardero decides to go ahead with the project.

In its outlook for commodities, TD Bank said Thursday that despite growing fears of a dramatic slowdown in China's growth rate, the bank expects Chinese authorities will manage to pull off a soft landing, with growth to remain at eight per cent in 2012.

Demand for steelmaking coal in China has been a key driver in recent years.

China has roughly half of the world's steel production capacity and demand for the metal and the coal used to produce it has been soaring as the country builds roads, highways, bridges, factories and office buildings.

Flooding in Australia earlier this year left coal mining companies unable to deliver on promised contracts.

Though production has returned and prices have traded lower in recent months, steel producers have looked to diversify their sources for coking coal and sought alternatives around the world.

"In the U.S. – another key resource consumer – economic growth is likely to remain in positive territory, albeit at a moderate pace. As such, we expect demand for commodities in America to remain steady," TD economist Dina Cover wrote in a report.

Marubeni and Winsway agreed last month to pay $10 per share for Grande Cache Coal, a producer of metallurgical coal which holds coal leases covering more than 22,000 hectares in the Smoky River coalfield in west-central Alberta.

The company is expected to sell 2.2 million to 2.4 million tonnes of coal in its current financial year and increase that to 3.5 million tonnes in its 2013 financial year.

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