The cash offer of $A4.75 per share has been unanimously recommended by the Gloucester Coal board of directors, who have cited a “unique synergy potential” with Xstrata’s existing NSW coal operations.

“Xstrata’s offer, during a time of sustained robust coal prices, confirms the value that Gloucester Coal has created in recent years by developing a leading Australian coal business,” Gloucester Coal chairman Andy Hogendijk said.

“The board believes that Xstrata Coal’s proven track record of investment in Australian coal operations to optimise resource potential and mine life, together with an excellent history of community involvement, health, safety and environmental management, will benefit our stakeholders.”

The Xstrata offer represents a cash premium of 11% to Gloucester’s all-time trading high price of $4.27.

Xstrata Coal chief executive Peter Coates said the company was looking forward to working with the Gloucester Coal team, customers and other stakeholders to develop the full potential of their operations.

“Gloucester Coal’s operations further extend the life of Xstrata’s New South

Wales mines, with good potential to add to the resource and reserve base through near-mine exploration and further resource conversion,” Coates said.

“Our ability to blend thermal coal production from Xstrata’s existing Hunter Valley mines with Gloucester Coal’s thermal coal product, together with the addition of a high-fluidity coking coal to our portfolio, diversifies our coal product offering further and presents significant synergy potential.”

A general meeting of Gloucester Coal shareholders to approve the scheme is expected to be held in early July 2007 with transaction completion anticipated in mid July 2007.

Gloucester shares have jumped as high as $4.85 today, suggesting some investors are expecting a rival bid.