Bloomberg News

Yancoal Studying More Than $1 Billion in Australian M&A

September 28, 2011

(Updates with analyst comment in fourth paragraph.)

Sept. 29 (Bloomberg) -- Yancoal Australia Ltd., a unit of China’s fourth-largest coal producer Yanzhou Coal Mining Co., may spend more than $1 billion buying more mines in Australia as the global market turmoil makes assets cheaper.

“We are acquisitive,” Murray Bailey, Yancoal’s Sydney- based managing director, said yesterday in an interview. “We would consider large takeovers” over $1 billion, he said.

Yancoal, which bought Felix Resources Ltd. for A$3.1 billion ($3 billion) in 2009, has agreed to spend another A$500 million in the past two months buying assets in Australia, the world’s biggest exporter of the fuel. The value of mining companies globally has dropped 30 percent from an April high, according to the Bloomberg World Mining index, as market turmoil threatens to slow global growth and reduce raw-material demand.

“If the market stays like this for a period of time, you could certainly see people look at their projects and decide they’re better off selling some of those,” Colin McLelland, a Sydney-based resources analyst at Investec Bank Australia Ltd., said by phone. Whitehaven Coal Ltd. and assets of Bandanna Energy Ltd. may be possible targets for Yancoal, he said.

There have been $32.4 billion of coal deals announced this year, according to data compiled by Bloomberg. The current quarter has had the highest value of deals since the last quarter of 2010. Coal prices have surged on rising demand to feed power stations and steel mills in China, the world’s largest user of coal, and amid global production disruptions, including record flooding in Australia’s Queensland state.

‘Potential Opportunities’

The current market conditions are creating potential opportunities, Bailey said in a phone interview. The company would consider both developed and undeveloped assets in Australia, including either thermal or steelmaking coal, he said.

“There are some opportunities there with companies that are sitting on resources that may not have the capacity to fund their development,” said Bailey. “There are also some producers that might want to be approached.”

Yanzhou this week agreed to buy Wesfarmers Ltd.’s Premier coal mine in Western Australia for A$297 million, after the purchase in August of Australia’s Syntech Resources Pty Ltd., a coal developer, for A$202.5 million.

The sale price for Premier coal was broadly in line with Deutsche Bank AG’s valuation of A$330 million, analysts led by Michael Simotas said in a Sept. 28 report. The deal, subject to regulatory approval, implied an enterprise value to reserves ratio of 2.2 times, less than the 3.3 ratio for the sale of nearby Griffin Coal Mining Co. to India’s Lanco Infratech Ltd., Deutsche said.

Whitehaven Again?

Whitehaven, with a market value of A$2.5 billion, may also become a target for Yanzhou again, said McLelland. Yanzhou has “looked at” Whitehaven, Board Secretary Zhang Baocai said in April. Whitehaven’s two biggest holders, First Reserve Corp. and AMCI International AG, last month sold 65 million shares, equivalent to 13.15 percent of the company, to investors.

Whitehaven wasn’t holding talks with interested parties for a takeover and a data room previously established following corporate interest has been closed since May, Managing Director Tony Haggarty said during a results conference call on Aug. 23.

Kate Kerrison, of Kate Kerrison & Co., an outside spokeswoman for Whitehaven, wasn’t immediately available for comment when contacted by phone.

Bandanna Talks

Bandanna, which has put itself up for sale, said this month it sold A$101 million in shares to help develop projects including a port and railroad. It remained in talks with third parties, including new companies in the past two weeks, for a corporate or asset transactions, Bandanna said on Aug 17.

“Some of the juniors have got big capex plans but don’t have the money,” McLelland said.

The biggest coal takeover this year was Alpha Natural Resources Inc.’s $7.1 billion purchase of Massey Energy Co. in June. That was followed by ArcelorMittal, the world’s largest steelmaker, and Peabody Energy Corp.’s offer to buy Australia’s Macarthur Coal Ltd. for A$4.8 billion last month.

Yancoal is considering an initial share sale to list on the Australian stock exchange, Bailey said. It’s in the process of appointing an adviser, he said.

--Editors: Keith Gosman, Rebecca Keenan

To contact the reporter on this story: Elisabeth Behrmann in Sydney at

To contact the editor responsible for this story: Rebecca Keenan at

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