SYDNEY, July 9: China’s Yanzhou Coal Mining Company Ltd offered to buy the rest of the shares it does not own in Yancoal Australia Ltd for A$199 million ($182 million), a deal which would give it control of additional coal supply at a time when a sharp decline in prices has made coal assets cheap.
But Yanzhou is expected to need the approval of Australia’s Foreign Investment Review Board, with one analyst noting that the proposal appears to run counter to the board’s requirements that it be run as an Australian company.
“I think FIRB’s going to have to have a pretty close look at (the proposed buyout), given that it’s in the opposite direction to the FIRB requirements that are currently in place,” said Chris Drew, an analyst at RBC Capital Markets.
The FIRB approved Yanzhou’s $3.5 billion bid for Australian coal miner Felix Resources Ltd in 2009 with strict conditions, including that the Chinese company operate its Australian mines through an Australian company, Yancoal, headquartered and managed in Australia.
Yanzhou was required to list Yancoal by the end of 2012 and reduce its ownership to less than 70 percent, which it did.
A spokeswoman for Yancoal declined to comment on the issue, while the FIRB did not immediately return requests for comment.
Yanzhou said it plans to take Yancoal, which operates about a dozen mines around Australia and has investments in two coal terminals, private if the A$0.91 per share offer to purchase the 22 percent offer of the company it does not already own is successful.
Yanzhou Coal is essentially making a bet on coal prices strengthening in the future, said Andrew Harrington, an analyst with Patersons Securities in Sydney.
“I think they would rather take over the asset while it’s cheap, the remainder of the asset while it’s cheap,” he said.
“They probably have a good feel of where coal demand is going, especially being based in the world’s largest consumer of coal and they probably think they are picking up additional coal supply at a very cheap price.”
Shares in Yancoal rose 3.6 percent to A$0.73 after the proposal was announced. The deal values Yancoal at A$905 million ($825 million).
The stock has lost around half its value since its listing in June 2012 following its merger with Australia’s Gloucester Coal, after which Yancoal and Yanzhou were required to report to the FIRB regarding compliance with the conditions at least annually.
Yanzhou said the deal would leave the company “better positioned in managing and operating a fully integrated business and delivering higher efficiency across its portfolio of businesses.”
Yancoal said independent directors would begin due diligence and hold detailed discussions with Yanzhou before making a recommendation to minority shareholders, a process it said “will take some time.”
Yanzhou intends to make the acquisition using depository interests which reflect the value of Yanzhou shares. The Chinese company, which is listed on the New York Stock Exchange, Shanghai Stock Exchange and Hong Kong Stock Exchange, is seeking permission to list the depository interests on the Australian Stock Exchange.
($1 = 1.0957 Australian dollars)
(agencies)
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