Galilee knocked back Bathurst’s initial $30 million offer in late October, then the following week announced plans to float ERG shares at 20c each to raise $25 million.

But a stronger bid from Bathurst has scuttled Galilee’s planned coal spin-off.

Galilee said the $35 million offer, which included a $2.4 million non-refundable deposit, represented greater value for shareholders.

The deal is subject to various regulatory approvals and is expected to give Galilee a net benefit of $30 million.

ERG’s Cascade and Takitimu mines collectively produce around 200,000 tonnes per annum of thermal coal for the domestic market.

But the big drawcard for Bathurst is ERG’s Whareatea West coking coal project, near its Cascade mine on the South Island and surrounded by Bathurst’s Buller project.

Much of the tenement is yet to be fully explored but it already has resources of 25.7 million tonnes with 18Mt in the measured category.

Bathurst said the acquisition would lift its Buller resources by 55% to 72.8Mt.

“This is a great outcome for Bathurst with the acquisition consolidating our tenement position on the Denniston Plateau and enabling us to add significant value to our project,” Bathurst managing director Hamish Bohannan said.

“By combining the two company’s projects we will be able to simplify development of new projects, exploit real synergies through greater utilisation of our planned processing facilities and extend the mine life of Eastern’s existing operations.

“The acquisition of Eastern will provide Bathurst with immediate coal production. Furthermore the skills, expertise and local knowledge of the Eastern workforce will greatly assist in the ongoing development of our suite of assets.”

Bathurst will fund the acquisition using its cash reserves of $78.4 million.

The explorer recently raised $110 million and used $35 million to settle the acquisition of the Buller project from L&M Holdings.

Bathurst previously aimed to produce 4 million tonnes per annum from its Buller coking coal project in New Zealand from the 2014-15 financial year onwards, but is set to become a minor producer once the acquisition is completed.

Galilee was formerly known as Eastern Corporation, before the company acquired Queensland coal seam gas player Galilee Energy in June and subsequently adopted the name.

By selling its New Zealand coal assets the company will gain the necessary funds to further pursue its CSG opportunities.

Bathurst shares are up 15% this morning to 46.5c, while Galilee shares are up 28.6% to 27c.