Mergers and Acquisitions (M&A) in Mining Update: Gloucester Yancoal Merger Creates Largest Listed Coal Company

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Mergers and Acquisitions (M&A) in Mining Update: Gloucester Yancoal Merger Creates Largest Listed Coal Company 

THE creation of Australia's largest listed coal company now appears a certainty. 

Gloucester Coal's shareholders approved a merger deal with Chinese state-owned company Yancoal Australia on Monday this week. 

At a meeting in Sydney, 98.4% of Gloucester shareholders voted in favour of the merger, which will create a company producing around 12 million mt/year of thermal, coking and pulverized coal (PCI) across operations in Australia and China. 

Gloucester chairman James MacKenzie told shareholders that a merger with Yancoal would provide "greater scale, diversification and a competitive cost base" which were "particularly significant in the current coal market where prices are subdued."

RBC Capital Markets analyst Chris Drew was quoted as saying that a merged entity would be in a stronger position than Gloucester continuing as a standalone company. But high debt levels and operating costs would also "challenge the merged group in the current environment of depressed thermal coal prices and soft second tier metallurgical coal markets."

In addition to the stakeholders, the Supreme Court of Victoria has also approved the proposed merger between Gloucester Coal Ltd and Yancoal Australia Ltd, thus paving the way for the creation of Australia's largest listed coal company.

Following the merger, Chinese parent company Yanzhou Coal Mining Co. will own 78% of Yancoal, while Gloucester will retain a 9% stake and Hong Kong trader Noble Group 13%. 

The two companies agreed in December 2011 to the tie-up, ultimately bringing together Yancoal's Ashton mine in the Hunter Valley of NSW with Gloucester's coking and thermal assets in the same state and also in Queensland. 

This is believed to be the biggest investment by a Chinese state-owned company in Australia's coal industry. 

In the midst of these events, Yancoal chief executive Murray Bailey accused the NSW government of sending "mixed signals" about whether the state wants to see growth in its coal sector as Yancoal plans to double production over the next four years, according to a report by The Australian Financial Review.

"Clearly the NSW government wants to stimulate the economy and we have [Resources and Energy Minister Chris] Hartcher and Co saying we really want to get more revenue out of the resources sector," Mr Bailey told an RBS Morgan’s conference in Sydney, the AFR reported. 

Put into perspective, Yancoal has suffered more than two years of delays in efforts to build a new open cut mine at its Ashton complex in the Hunter Valley.  "We've been frustrated both by the change of government in NSW and the planning assessment commission rejection in December last year," Mr Bailey said, according to the AFR.

The backing of Yanzhou could allow Gloucester to speed up development of its Hunter Valley projects and make use of excess port capacity in New South Wales. Yancoal already owns coal assets in Queensland and New South Wales, including the Ashton mine in the Upper Hunter Valley, which can produce up to 3 million mt/y of semi-soft coking coal.