Canadian coal bargain

JAPANESE trading house Marubeni aims to divest its 40% stake of Canadian Rocky Mountains miner Grand Cache Coal for one US dollar to Chinese coking coal miner Up Energy Development Group.
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Blair Price

The proposed deal symbolises the distress in the metallurgical coal scene with Marubeni and a partner buying surface and underground miner GCC for about $1 billion ($A1.13 billion) three years ago.

“Marubeni and Winsway Enterprises Holdings agreed to buy stakes in Calgary-based Grande Cache in 2011, the year that the price of coal peaked, paying a 70% premium over its market value on the Toronto Stock Exchange,”Bloomberg reported.

“The partners were banking on robust demand from Chinese steelmakers, which has since slowed.

“The subsequent plunge in the price of coal and other industrial commodities has hurt Japan’s traders, prompting a shift in focus to areas such as power generation, food, health and fashion.”

Under the memorandum of understanding agreement (non-binding), Up will also buy Winsway’s 42.7% stake of GCC for $1 and will assume all of GCC’s debt obligations.

“The company wishes to emphasise that the proposed transaction is subject to, among other things, the signing of the definitive sales and purchase agreement, the terms and conditions of which are yet to be definitively agreed,” Up said.

“Shareholders and potential investors of the company should note that the proposed transaction may or may not materialise and the final structure and terms of the proposed transaction, which are still subject to further negotiations between the parties, have yet to be finalised and may deviate from those set out in the Marubeni MOU.”

The non-binding deal also gives Marubeni the right to buy back 15.78% of GCC over the next five years and Winsway the right to buy back 16.86% while Marubeni will also be able to seel some of GGC’s product coal for the next 10 years.