Marubeni Corp., a Japanese trader that with a partner bought Canada's Grande Cache Coal Corp. for about $1-billion (U.S.) three years ago, said it would dispose of the asset for a nominal $1 to a Hong Kong mining investor.
Marubeni and Winsway Enterprises Holdings agreed to buy stakes in Calgary-based Grande Cache in 2011, the year that the price of coal peaked, paying a 70-per-cent premium over its market value on the Toronto Stock Exchange. The partners were banking on robust demand from Chinese steel makers, which has since slowed.
The subsequent plunge in the price of coal and other industrial commodities has hurt Japan's traders, prompting a shift in focus to areas such as power generation, food, health and fashion. Earlier this week, Marubeni's larger rival, Sumitomo Corp., revealed a 30 billion yen ($306-million Canadian) writedown on coal assets in Australia, part of charges related to commodities and energy investments totaling $2.2-billion.
Up Energy Development Group has agreed to buy Marubeni's 40-per-cent and Winsway's 42.7-per-cent stakes in the Canadian miner, and will assume its obligations including a bank loan, the Hong Kong-listed company said in a statement yesterday.
"We've take many factors into consideration" and decided to sell, a Marubeni spokesman said today, declining to be named in line with company policy. A call outside normal business hours to the office of Winsway, which is also based in Hong Kong, wasn't answered. Today is a public holiday in China.
Buyback Right Marubeni retains the right to buy back 15.78 per cent of Grand Cache, and Winsway 16.86 per cent, over the next five years, according to Up Energy's statement. Marubeni will also be able to sell some coal from the mine for the next 10 years.
Grande Cache was a way for Marubeni to diversify its coal assets outside Australia. The Tokyo-based company in May wrote down part of the miner's value due to the slump in coal prices. In a statement today, it said the disposal won't affect its profit forecasts for this year.
Robert Murray, the owner of the largest closely held U.S. coal miner, Murray Energy Corp., predicted last month that rivals would go bankrupt with "nothing on the horizon" to suggest a recovery in demand or prices.