Bloomberg News

Yanzhou Said to Offer Cash, Unit Stake for Gloucester Coal

January 04, 2012

(Updates with Yanzhou approval in third paragraph.)

Dec. 22 (Bloomberg) -- Yanzhou Coal Mining Co. offered about A$700 million ($709 million) in cash and a 23 percent stake in its Australian unit for Gloucester Coal Ltd., according to two people with knowledge of the matter.

Under the plan, Sydney-based Gloucester will be merged with Yancoal Australia Ltd., and Yanzhou will own 77 percent of the new company, said the people, who declined to be identified because the terms aren’t public. Gloucester stockholders will receive A$3.20 in cash per share on a fully diluted basis, the people said.

Yanzhou’s board unanimously approved a planned merger of its Australian unit with Gloucester, the company said today in a stock-exchange statement, without giving any further details.

Buying Gloucester, controlled by Noble Group Ltd., will add four coal mines and access to ports in Australia, where Yanzhou operates six mines. Yanzhou plans to boost annual output there to about 30 million metric tons from about 16 million tons in the next five years to help meet growing demand from China, UBS AG said in a Dec. 20 note, citing an investor presentation.

“Yanzhou Coal wants to make sure its coal-mine portfolio in Australia is strong enough to support its production growth in years to come,” said Felix Lam, a Hong Kong-based analyst at Daiwa Securities Capital Markets Co. “The port facilities are of strategic importance because they will allow it to connect its mining sites directly to marine transportation.”

Australia Coal Deals

Coal deals involving companies in Australia, the largest exporter of the raw material, swelled to more than $11 billion this year from $9.44 billion in 2010, according to data compiled by Bloomberg. The biggest transaction was Peabody Energy Corp.’s $4 billion takeover of Macarthur Coal Ltd. in July. The average premium paid globally this year in coal acquisitions is 19 percent, the data show.

Yanzhou also offered a payment of as much as A$3 a share should the stock fall below A$6.96 in the 18 months after the deal closes, the people said. The so-called value protection clause and the dividend payment imply a value of A$2.2 billion for Gloucester, one person said.

Gloucester closed at A$7.03 in Sydney on Dec. 19, before trading in the shares was suspended. Yanzhou plans to use the purchase as a means of listing its Australian assets, a person with knowledge of the matter said earlier this week.

Zhang Baocai, Yanzhou Coal’s board secretary, declined to comment on details of the deal. Calls to Marie Festa, director of investor relations at Gloucester Coal, went unanswered after normal business hours.

Asian Demand

Yanzhou can profit from shipping coal back to Asia rather than relying on local markets. It’s among producers expanding as demand from power utilities and steelmakers rises, while asset prices drop. Global use of the fuel is projected to climb by an annual 2.8 percent in the six years to 2016, driven by China’s economic growth, the International Energy Agency said this month.

Buying Gloucester will help Yanzhou avoid an Australian share sale, Ivan Lee and Matthew Cross, analysts at Nomura Holdings Inc., said in report dated Dec. 20. Yancoal Australia is required to list a minimum of 30 percent of its Australian assets by the end of 2012 as part of conditions attached to its A$3.1 billion takeover of Felix Resources Ltd. in 2009.

Yancoal Acquisitions

Yancoal may spend more than $1 billion buying mines in Australia, Murray Bailey, managing director of the unit, said in a September interview. Yancoal had net income of A$415 million for the year to Dec. 31 and debt of A$3.3 billion, according to a statement on its website.

Noble, a Singapore-listed commodities supplier, owns 64.5 percent of Gloucester, according to data compiled by Bloomberg. Noble, whose main business involves trading and shipping bulk commodities including coal, took control of the company in 2009 when it offered A$7 a share. Chief Executive Officer Ricardo Leiman quit last month after Noble reported a quarterly loss.

Noble shares have declined 45 percent this year in Singapore.

Yanzhou this month proposed selling as much as 15 billion yuan ($2.4 billion) in bonds over three years. Buying Gloucester would be Yanzhou’s fourth acquisition in Australia following the Felix takeover, the purchase of coal developer Syntech Resources Pty for A$202.5 million in August and two coal subsidiaries of Wesfarmers Ltd. in September for A$296.8 million.

--With assistance from Richard Frost in Hong Kong, Elisabeth Behrmann in Sydney and Helen Yuan in Shanghai. Editors: Philip Lagerkranser, Amanda Jordan

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net.

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Rebecca Keenan at rkeenan5@bloomberg.net.


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