The mine would ramp up its production of saleable PCI coal to 4.6 million tonnes per annum to take advantage of the forecast premium that PCI will enjoy over other metallurgical coals and its ongoing demand from Chinese customers of Yancoal’s parent company Yanzhou.

Yarrabee is located 150km west of Rockhampton and 280km northwest of the Port of Gladstone and produces a low-volatile PCI coal which is used in steel making.

The mine has reserves of 57Mt and resources of 170Mt.

The investment would also increase the proportion of saleable coal to ROM coal from its present 2.4Mt:3.1Mt to 4.6Mt:5.8Mt, ensuring higher margins from the open cut mine.

Yancoal is positioning the mine for further growth by seeking to lock in rail and port infrastructure access.

Coal product is currently hauled via road to the Boonal load out facility on the Blackwater rail system.

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Its annual port allocation consists of 1.7Mt at RG Tanna with an additional 0.1Mt dependent on available capacity and up to 1.0Mt through Barney Point (ending in 2014) on a “best endeavours” basis.

A further port allocation of 1.5Mtpa is expected at the Wiggins Island coal export terminal stage 1 after it is commissioned, which is expected to occur in 2014.

Yancoal has agreed with Indian group Adani Mining to conditionally acquire port capacity of 1.3Mtpa for Yarrabee at Dudgeon Point, subject to approval and construction of that facility. Yancoal expects this capacity to become available from 2017.

The proposed $8 billion merger is to be effected by scheme of arrangement between Gloucester and its ordinary shareholders under which Yancoal will acquire Gloucester for Yancoal shares, with Yancoal to list on the Australian Securities Exchange as MergeCo.

Gloucester shareholders will meet to vote on the merger scheme and capital reduction on June 4 ahead of its planned implementation date of July 3.