Yancoal-Gloucester tie-up could be less risky than IPO

YANCOAL’s expected $8 billion merger with Gloucester Coal could be part of a trend in which Australian companies access funds from Asian partners without having to resort to on-market capital raising in a difficult climate, according to a study of the year’s initial public offerings by Deloitte.
Yancoal-Gloucester tie-up could be less risky than IPO Yancoal-Gloucester tie-up could be less risky than IPO Yancoal-Gloucester tie-up could be less risky than IPO Yancoal-Gloucester tie-up could be less risky than IPO Yancoal-Gloucester tie-up could be less risky than IPO

Gloucester Coal's Duralie mine.

Lou Caruana

The merger would also enable Yancoal’s Chinese parent company, Yanzhou Coal Mining, to fulfil its Foreign Investment Review Board obligations to float off 30% of the company without having to go through the expense and uncertainty of an IPO, which is still an option for the Chinese giant.

“Market conditions will dictate the size of the IPO market and the outlook remains tough, however, from a supply perspective, the signs are positive if market conditions improve,” Deloitte corporate finance partner Rob McConnel said.

“It is also interesting to note that the increasing involvement of Asian buyers in the Australian market has created another option for Australian businesses looking to exit or raise capital and this may reduce the number of Australian businesses looking to list on the ASX as better value may be obtained elsewhere,” he said.

Deloitte said one of the FIRB’s conditions surrounding Yanzhou’s acquisition of Australian coal miner Felix Resources in 2009 required it to operate its Australian mines through an Australian company – Yancoal Australia – and subsequently reduce its ownership in Yancoal to less than 70% by the end of 2012.

“One option to comply with this requirement would be an IPO,” it said.

Gloucester Coal yesterday asked for a trading halt on its shares “to make an announcement in connection with a possible change of control transaction”

Gloucester stated it planned to almost double production from its coal operations from 5.5 million tonnes this financial year to10Mt per annum by 2015, on the back of a number of acquisitions during 2011.

Gloucester chairman James MacKenzie told its annual general meeting the plan to ramp up production was contingent on the delivery of projects which were at various stages of delivery.

Looking further forward, MacKenzie said Gloucester’s annual coal production could increase to more than 12Mtpa in less than ten years, with coking coal set to make up 40-50% of production.

2011 proved to be an acquisitive year for the company, with the near 50% purchase of Middlemount in Queensland and the purchase of the Donaldson and Monash assets in the Hunter Valley.

MacKenzie said the purchases had transformed the company from a small coal producer operating in the Gloucester Basin to a “multi-site operation with significant growth potential”

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