Bloomberg News

Mongolian Mining to Buy Kerry’s Coal Mine for $464.5 Million

June 01, 2011

(Updates with bond details in 7th and 8th paragraph.)

June 1 (Bloomberg) -- Mongolian Mining Corp., the nation’s biggest coking coal exporter, agreed to pay $464.5 million to buy the Baruun Naran mine in Mongolia from a unit of Kerry Holdings Ltd., adding production to an adjacent operation.

Mongolian Mining will pay $379.5 million in cash for QGX Holdings, the unit that owns the mine, and $85 million in convertible bonds, the company said today in a statement.

“The sizable coking coal resources and reserves estimated in the Baruun Naran coking coal mine will open potential to diversify the group’s coal products and enhance sources of revenue,” Mongolian Mining said. The company will also be able to share mine and transport infrastructure, the statement said.

Prices for coking coal, a key steelmaking raw material, rose to a record this quarter, boosting appetite for mergers and acquisitions. Rio Tinto Group in April won control of Mozambique developer Riversdale Mining Ltd. following a A$3.9 billion ($4.2 billion) offer in December.

Mongolian Mining, based in Ulaanbaatar, climbed 2 percent to HK$9.28 at the close in Hong Kong. The stock has risen 2.3 percent this year, compared with a 2.6 percent gain in the Hang Seng Index.

Citigroup Inc. is advising Mongolian Mining and UBS AG is advising Kerry.

The bonds, which pay 2 percent interest, can be converted into as many as 60.7 million shares in Mongolia Mining at HK$10.92 each, the statement said. QGX is 90 percent owned by Kerry Mining and 10 percent owned by the board of Mongolian Mining and its controlling shareholder.

Extra Payment

Mongolia Mining may be required to pay as much as $105 million extra if the total proved reserves in the mine exceed 150 million metric tonnes within 18 to 21 months. Kerry Mining and other shareholders of the mine are required to pay as much as $90 million if the reserve is below that level during the period, the statement said.

The company raised about $750 million in an initial public offering in October and had said it plans to use $206 million from the share sale to fund acquisitions.

Mongolian Mining plans to raise production to 15 million tons a year by 2013 to meet increasing demand for the raw material from China’s steelmakers, Chief Executive Officer Battsengel Gotov said in September.

“Demand for coking coal will continue to grow,” Mongolian Mining said in the statement today. “The acquisition enables the group to further expand its coking coal mining business and to solidify the company’s position as the leading coking coal miner in Mongolia.”

Record Prices

Japan’s Kobe Steel Ltd. agreed to pay Rio a record $330 a ton for the quarter starting April 1. The talks ended before a magnitude-9 earthquake in the Asian nation halted some steel output.

Asian steelmakers may pay as much as 8 percent less for hard coking coal next quarter as Australian supplies recover from disruptions caused by heavy rain and flooding in the world’s biggest exporter of the commodity.

Australian free-on-board prices may drop to $305 a ton for three-month contracts starting July 1, according to the median estimate of nine analysts surveyed by Bloomberg News last month. Forecasts ranged from $280 to $330 a ton.

Mongolian Mining operates at Tavan Tolgoi, near the border with China. The Tavan Tolgoi deposit is one of the world’s largest unexploited reserves of coking coal.

--Editors: Rebecca Keenan, Ryan Woo

To contact the reporters on this story: Soraya Permatasari in Melbourne at soraya@bloomberg.net; Cathy Chan in Hong Kong at kchan14@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net


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