Macarthur makes its move

MACARTHUR Coal has launched a takeover of fellow Australian producer Gloucester Coal at $A8.16 per share in a bid to create Australia’s leading independent coal company.
Macarthur makes its move Macarthur makes its move Macarthur makes its move Macarthur makes its move Macarthur makes its move

A conveyor belt and coal stockpile at Moorvale. Image courtesy of Macarthur Coal.

Angie Tomlinson

If successful, Macarthur Coal will emerge with a market capitalisation of $3.4 billion, control of six operating mines and an impressive reserve and resource base across three coal basins and two states.

The scrip offer of 0.84 Macarthur shares per one Gloucester share, valuing Gloucester at $669 million, comes with an $8 cash alternative for Gloucester’s shareholders.

The scrip offer is a 24.5% premium to Gloucester’s Monday closing price and a premium of 26.6% to the one-month volume-weighted average price.

Gloucester is 87.7% controlled by Hong Kong trader Noble Group, which has stated it plans to not take the cash alternative if it accepts the offer. Macarthur’s bid is also a 16.6% premium to the $7 per share Noble paid for Gloucester just a few months ago.

“The proposed transactions will create a great Australian coal company,” Macarthur chairman Keith De Lacy said.

“The transactions will transform Macarthur into Australia’s leading independent coal producer with pro forma 2009 sale volumes of 7.5 million tonnes and strong geographic, mine, port and product diversification.

“Gloucester and Macarthur shareholders will have exposure to high-quality producing coal mines in three separate coal basins, with strong growth potential. Gloucester shareholders will also have the benefit of participating in future dividends paid by Macarthur.”

Future growth by Macarthur will be supported by port capacity allocations at Abbot Point and Newcastle Coal Infrastructure Group.

“We will operate six mines in two states, shipping through two port terminals, increasing to four with future capacity allocations at NCIG and Abbot Point,” Macarthur managing director Nicole Hollows said.

The new-look Macarthur will control operating mines Coppabella and Moorvale in Queensland’s Bowen Basin, Stratford and Duralie mines in New South Wales’s Gloucester Basin, and the Donaldson open cut and Tasman and Abel underground mines in NSW’s Hunter Valley.

Macathur’s product base will be extended beyond pulverised injection coal to Gloucester’s coking coal and Donaldson’s thermal coal. The break-up is expected to be 44% PCI, 8% export coking, 47% export thermal and 1% domestic thermal coal.

The merged entity will control reserves of 316.5Mt and resources of 1.8 billion tonnes, with upside potential.

In a separate deal announced today, and in a bid to take further control of its assets, Macarthur said it intended to acquire Citic Resources’ direct interests in its operating assets and to terminate marketing rights to China and India.

Macarthur will issue 11.3 million of its shares at a fixed price of $9.70 per share, for a total value of $110 million, to Citic.

Assets to be acquired include all of Citic Coppabella, comprising 7% of the Coppabella and Moorvale joint venture, including the Coppabella, Moorvale and Olive Downs North projects; a 7% shareholding in Macarthur and Bistrotel; and a 7% shareholding in Macarthur Coal (C&M Equipment).

Macarthur justified the move on Citic as a consolidation of its operating assets, giving it 80.3% of the Coppabella and Moorvale joint venture and increasing its attributable sale volumes by 400,000t.

Its reserves and resources will rise by 8.8Mt and 23Mt respectively.

By terminating Citic’s marketing rights, Macarthur will gain full control over its coal sales into China and India.

The deal is not conditional on the Gloucester offer or the Noble transactions.

As part of the Gloucester deal, Macarthur intends to buy Noble’s stake (25.34%) in the Middlemount joint venture, giving it 100% control of the proposed mine and all marketing rights. The deal would cancel Noble’s rights to acquire further shares in Middlemount and reduce royalty payments to Noble to 1.5%.

Macarthur is also continuing discussions with Noble to acquire a majority stake, expected to be 79.9%, in Donaldson Coal.

The deal will also involve a series of fixed-price and index-linked coal sales agreements covering production from 2010 until 2018. The royalty fee payable by Donaldson to Noble will be reduced to 1.5%.

Macarthur said several commercial terms were yet to be negotiated over Donaldson, but it was expected Noble would remain responsible for logistics and shipping for Donaldson’s product under a coal supply chain management agreement.

The consideration payable by Macarthur to Noble for the Noble transactions will be cash of $A175 million and 22.5 million Macarthur shares.

Macarthur plans to fund the cash component of its offer with existing cash reserves, currently sitting at more than $300 million.

On completion of the takeover, Macarthur’s register is expected to be held 24% by Noble, 16.5% by Citic Resources, 57.1% by other shareholders and 2.4% by former Gloucester shareholders other than Noble.

Gloucester’s board has recommended Macarthur’s takeover in absence of a superior proposal and subject to an independent expert finding the proposal fair and reasonable.

“Gloucester shareholders can obtain an exposure to a suite of high-quality producing and development coal mines, as well as maintaining an interest in the existing Gloucester assets,” Gloucester chairman James MacKenzie said.

Two Gloucester directors will join Macarthur’s board on completion of the takeover.

Macarthur has proposed some Gloucester executives join its management team, including Gloucester chief executive Barry Tudor and chief operating officer Graham Colliss, who will be offered senior management roles within the combined entity. Peter Kane from Macarthur will continue as CEO for Macarthur’s Queensland assets.

The offer is subject to a number of conditions, including 90% minimum acceptance by Gloucester shareholders and Foreign Investment Review Board approval.

A bidder’s statement is expected to be released in late February 2010.

Gloucester shares jumped 25.5% by mid-morning trade today to $8.22, while Macarthur shares were up 3.71% at $10.07.

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