Revealed as a “possible offer” by London-based Caledon, Polo is offering 11.4 of its shares for every Caledon share, valuing Caledon at GBP61.56p ($A1.026) a share as of April 26.
But the deal is subject to a variety of pre-conditions before a firm offer is made.
These include the completion of due diligence by both parties, recommendation of the offer by Caledon’s independent directors, Caledon agreeing to terms of an implementation agreement and final Polo board approval of the deal.
Given the interest in Australian metallurgical coal as seen by the recent takeover offers for Macarthur Coal, there could possibly be a competing bid for Caledon from a third party.
Caledon aims to ramp up its Cook mine to reach 700,000 tonnes of production and is planning to develop the nearby Minyango deposit.
The project is targeting 4 million tonnes of run-of-mine production per annum through a longwall with only a 50-70m wide face.
The Minyango project will use Cook’s wash plant and rail infrastructure to form a larger mining complex.
Last year Caledon executed a sales process for its Queensland assets but ended it in December even though there were Indian reports that privately owned Essar Group was interested in an acquisition.
Fellow London and Toronto-listed Polo already owns 26.11% of Caledon and is known for its 50:50 joint venture with Peabody Energy in Mongolia, with the JV holding 56 coal and 26 uranium licences in the country.
Polo chairman and Caledon board member Stephen Dattels resigned from the board of uranium explorer Extract Resources about two weeks ago.
Polo recently appointed BMO Capital Markets to evaluate and advise on a range of strategic options with respect to its 9.3% shareholding in Extract.
Should the merger with Polo proceed, Caledon says the enlarged group will not seek a listing on the Australian Securities Exchange, meaning Caledon’s current ASX listing will be withdrawn.
“The transaction will provide all Polo shareholders with a renewed focus and direct exposure to the coking and thermal coal markets through 100 per cent ownership of the Cook mine and the Minyango project,” Polo executive chairman Neil Herbert said.
“The proposed combination offers diversification for Caledon shareholders through Polo's investments in resource companies and its joint venture in Mongolia, while retaining shareholders’ exposure to the upside potential contained within our Cook mine and Minyango project,” Caledon managing director Mark Trevan said.
“The combined strength of Polo and Caledon’s balance sheets will also reduce the risk inherent in financing the development of the Minyango project.
“Access to Polo’s strong management team with particular emphasis on capital markets experience will also be a major benefit.”
Caledon’s loan agreements
Both Caledon and Polo entered into two loan facility agreements today.
Under the first agreement, Polo will provide £18 million ($A30 million) under a short-term credit facility to help Caledon pay off its convertible loan notes due on July 5, which are at an 8.5% interest rate.
Under the second deal, Polo will provide a £4 million ($A6.67 million) credit facility to help Caledon meet its commitments under the Wiggins Island tonnage allocation process.
The interest rate on both facilities is 10% per annum.
Caledon said the loan facilities were secured by a first fixed charge over the shares of its Hazelhurst Holdings subsidiary, which is the parent company of Blackwater Coal – the legal and beneficial owner of the Minyango project.
Last year was tough on Caledon as it suffered a net loss of $A11.4 million compared with a profit of $8.2 million for 2008.
Revenues for the company fell by 44% to $67.8 million for the year to December 2009 as the price of coal fell to $US141 a tonne during the global financial crisis.
Caledon shares are not trading but were last at A93.5c on the ASX.