MARKETS

BHP and Mitsubishi launch bid for QCT

Rationalisation of the Australian coal industry continues with the long anticipated move by BHP and Mitsubishi to buy QCT for $830 million.

Staff Reporter

On September 11, BHP and Mitsubishi Development produced a compromise bid for takeover target, QCT Resources (QCT). This came after QCT referred the bid to the Takeover Panel on September 8, saying not all the relevant information had been disclosed to the market. QCT said the bidder's statement did not include up-to-date revenue forecasts for some of the operations. Following discussions with QCT, BHP and Mitsubishi agreed to include the following additional piece of information in the package to be mailed to QCT shareholders - “The forecast revenue (FOB) of the CQCA Joint Venture and the Gregory Joint Venture for the year ended 30 June 2001 is approximately US$1,204 million.”

On August 29, BHP and Mitsubishi Development announced a joint cash offer of $1.20 per share for shares in QCT. The offer was made by the 50/50-owned bidding vehicle, MetCoal Holdings and valued QCT at $830 million. MetCoal said the offer represented a 22% premium to QCT’s closing share price on August 25 of 98c and a 30% premium to the weighted average share price of 92c for the preceding three months.

Days later QCT rejected the takeover bid, at the same time as it reported a $31.9m loss in the 30 June 2000 year. The results were pulled down by the $41m writedown on the Kenmore longwall mine in South Blackwater. QCT managing director Chris Rawlings says that despite the result, underlying business is strong, company reserves are up and the outlook remains promising. Before the abnormal writedown, QCT earned $30.6m, compared with a $88.5m profit the previous year.

"A substantial improvement in the group's financial performance is expected to be achieved in 2000/01, particularly in the second half," the company said in a statement to the Australian Stock Exchange. "There is growing confidence that coal markets have bottomed, and the short to medium term outlook is much improved," QCT said.

QCT holds a non-operating 32.37% interest in the Central Queensland Coal Associates (CQCA) and Gregory joint ventures and 100% of the South Blackwater coal mining operation in Queensland’s Bowen Basin. BHP and Mitsubishi own the remaining interests in these joint ventures. BHP manages the CQCA and Gregory joint ventures and markets all products.

Commenting on the offer, BHP managing director and CEO, Paul Anderson, and Mitsubishi managing director, Kenjiro Itadani, said: “BHP and Mitsubishi have agreed to form a strategic alliance designed to ensure the future competitiveness of their Bowen Basin metallurgical coal assets. This offer for QCT is the first step, as partners, in furthering this alliance.

“QCT’s major shareholder, Santos, has announced that its 36.4% shareholding in QCT is now considered non-core to the company’s future, making this an appropriate time for BHP and Mitsubishi to address the ownership of these Bowen Basin assets. As existing joint venture partners, BHP and Mitsubishi are the natural buyers of QCT.

“Our offer fully values this opportunity for BHP and Mitsubishi. QCT is an investment vehicle and its key assets are the assets we already manage. We also recognise the reported underperformance of South Blackwater mine."

In notes accompanying the offer the two companies noted the problems the Kenmare longwall mine has experienced over the last year.

"On 3 August 2000, QCT reported that longwall equipment had been recovered from the Kenmare C seam. QCT indicated there was uncertainty whether the C seam could be economically mined using longwall technology. QCT also indicated it was returning to the overlying A seam. Longwall mining at Kenmare was not expected to resume before October 2000."

BHP and Mitsubishi have indicated that these problems have made it difficult to outline their exact intentions for South Blackwater.

"Consequently, there will be no decision made by BHP andMitsubishi concerning their intentions with respect to the South Blackwater mine until a detailed review of the asset has been undertaken when relevant information becomes available," the companies said.

What appears most likely is an integration of the assets and operations of the South Blackwater mine with those of the adjacent CQCA Joint Venture owned Blackwater open cut mine. This may include the closure of some of the existing open cut and underground mines and associated infrastructure at South Blackwater. However, retaining South Blackwater mine as a stand-alone mining and marketing operation remains a possible course of action, the companies said.

“We note that QCT’s share price already builds in speculation of a takeover offer. As such, the premium of the offer price to the closing price on Friday 25 August does not truly reflect the value of our offer. Our offer price is significantly higher than the price QCT shares were trading at before the speculation began.”

BHP and Mitsubishi are being jointly advised by CIBC World Markets and ING Barings.

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