Bloomberg News

Winsway, Marubeni to Acquire Grande Cache Coal for C$1 Billion

November 01, 2011

Nov. 1 (Bloomberg) -- China’s Winsway Coking Coal Holdings Ltd. and Japan’s Marubeni Corp. agreed to acquire Canadian metallurgical-coal producer Grande Cache Coal Corp. for about C$1 billion ($1 billion).

Winsway and Marubeni will pay C$10 a share in cash, 112 percent more than its 20-day volume-weighted average trading price, the Calgary-based mining company said yesterday in a statement.

Surging demand from steel producers in China and flood- related supply disruptions in Queensland, Australia, have driven prices for metallurgical coal to record highs this year. Grande Cache, which mines in west-central Alberta, forecast sales of 2.2 million to 2.4 million tons in the year ended March 2012.

“A lot of the larger companies are looking to add coal exposure,” John Zechner, chairman at J. Zechner Associates Inc. in Toronto, which manages about C$2.5 billion in assets and owns Grande Cache shares, said yesterday in a telephone interview. “I think that companies are realizing the long-term value of the resources in the ground, as opposed to the market, where these stocks have been under a lot of pressure over the last couple of months.”

Grande Cache climbed 68 percent to close at C$9.87 in Toronto yesterday, after declining 44 percent this year through Oct. 28.

Winsway imports metallurgical coal into China, the world’s largest consumer of metallurgical coal. Marubeni is Japan’s fifth-largest trading company.

‘Long-Standing’ Ties

“Marubeni has had a long-standing business relationship with the corporation,” Grande Cache Chief Executive Officer Robert Stan said in the statement. “Winsway is one of our main customers for the Chinese market.”

There have been $23.4 billion takeovers of coal mining companies valued at $100 million or more announced so far this year, according to data compiled by Bloomberg. There were $21 billion of deals announced in 2010, the data show.

Alpha Natural Resources Inc. acquired metallurgical-coal producer Massey Energy Co. in June for $7.1 billion, the largest coal deal since Teck Resources Ltd. bought the 80 percent of Fording Canadian Coal Trust it didn’t already own in 2008 for $10.4 billion.

Walter Energy Inc., based in Birmingham, Alabama, acquired metallurgical-coal miner Western Coal Corp. for C$5.32 billion in April.

‘A Bit Cheaper’

“This deal looks a bit cheaper than the Walter and Western Coal transaction” based on the purchase price per ton of reserves, Meredith Bandy, a Denver-based analyst at BMO Capital Markets, said by phone.

Spot prices for metallurgical coal have declined from highs reached earlier this year because of concerns that global economic growth will slow, she said.

Winsway and Marubeni are offering $9 a ton of coal reserves, which is more than the average of $2.91 a ton for comparable North American metallurgical-coal transactions, and less than the $17.86 a ton Walter paid for Western Coal, Bandy said in a note to clients.

The Grande Cache agreement includes a break fee of C$50 million payable by Grande Cache if the deal isn’t completed. Winsway and Marubeni will pay C$100 million if they scrap the deal.

February Close

The acquisition, which requires approval by two-thirds of Grande Cache shareholders and a majority of Winsway shareholders, is expected to close in February, according to the statement.

Marubeni didn’t immediately respond to calls to its Tokyo headquarters made outside of regular business hours. Calls to Winsway’s Hong Kong office, also outside of regular hours, weren’t immediately returned.

Deutsche Bank AG and UBS AG are advising Grande Cache and Burnet Duckworth & Palmer LLP is the company’s legal counsel. The acquirers are being advised by Toronto-Dominion Bank and law firm Osler, Hoskin & Harcourt LLP, Grande Cache said.

Cline Mining Corp., a competitor with coal projects in Canada and the U.S., gained 19 percent to C$2.11 yesterday in Toronto. SouthGobi Resources Ltd., a miner of Mongolian coal that has a supply agreement with Winsway, climbed 2.8 percent to C$8.32.

Cline Mining “could be next” to be acquired, Marc Johnson, a Toronto-based analyst at M Partners, said in a note to clients. Cline started metallurgical-coal commercial shipments from its New Elk mine in Colorado in August.

“Cline could be of interest to many parties at this point,” Johnson said in a telephone interview. “And they do have easy rail access to a port in Corpus Christi for international shipments.” Johnson rates Cline shares “buy” and doesn’t own any.

--Editors: Steven Frank, Jasmina Kelemen.

To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.


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