UPDATED: Northern Energy becomes a takeover target

CASHED-up New Hope has made a $193 million cash offer to acquire Queensland coal explorer Northern Energy Corporation at $1.50 per share – a 43% premium to Wednesday’s closing price.
UPDATED: Northern Energy becomes a takeover target UPDATED: Northern Energy becomes a takeover target UPDATED: Northern Energy becomes a takeover target UPDATED: Northern Energy becomes a takeover target UPDATED: Northern Energy becomes a takeover target

Greg Rowan, senior inspector of mines, Queensland Government Natural
Resources & Mines

Blair Price

Northern went into a trading halt yesterday over a “non-binding indicative approach”, with New Hope only revealed as the suitor this morning.

New Hope said its offer was also a 57.9% premium to Northern’s closing price of 95c on September 29 – the day before it made its “formal approach”.

Shares in the Queensland explorer have surged 17% since this date to 111.5c before the trading halt yesterday.

“We believe this to be a very attractive offer for NEC shareholders as it is at a substantial premium to NEC’s recent trading history,” New Hope chairman Robert Millner said.

“Our offer also provides certainty of value in what has been a volatile period for NEC shareholders.

“Northern Energy is a coal exploration company and requires significant amounts of additional capital to develop its project pipeline.

“New Hope has a strong balance sheet and the capacity to develop NEC’s projects from existing cash reserves.

“New Hope’s offer allows NEC shareholders the opportunity to exit at a highly attractive price without the need to contribute further cash to NEC.

“For New Hope, the proposed acquisition of NEC enables New Hope to gain further exposure to the metallurgical coal market as well as providing an additional thermal coal development pipeline.”

Northern is not recommending shareholders take any action at this stage.

Before New Hope’s announcement this morning, Northern said the proposal was subject to a number of pre-conditions, including due diligence.

“The proposal states that it is non-binding, indicative only in nature and not capable of acceptance,” Northern said.

“After careful consideration of the proposal and its conditions, and after taking financial and legal advice, the board considers the proposal to be inadequate and has informed New Hope of this view.

“The board has also informed New Hope that it is open to continuing discussions and will consider any proposal that is in the best interests of shareholders.”

Earlier this year, and before the Resources Super-Profits Tax was unveiled, New Hope made a failed takeover bid for Macarthur Coal that included a cash option of $A14.50 a share.

While some investors might think otherwise, Northern chairman Chris Rawlings said it came as no surprise that Northern had received a takeover approach from New Hope.

“We have a substantial inventory of hard coking and thermal coal and are well positioned to develop our first mining operation, at Maryborough, upon receipt of environmental approvals,” he said.

The takeover approach comes after Northern recently said it was pursuing an allocation of 5 million tonnes per annum from the second-stage development of the Wiggins Island Coal Export Terminal.

Northern’s bid for this allocation will cater to its Elimatta thermal coal project, with the development of the planned Surat Basin Rail designed to sync up with the second stage of WICET.

Northern is on track to start production from its 500,000 tonnes per annum Colton hard coking coal project in Queensland in 2012, and has secured a 400,000t allocation from the first stage of WICET.

While the new terminal is not expected to start shipping under its stage-one capacity until 2014, Northern already holds an allocation through Barney Point for the interim period.

The Elimatta open cut project hosts 106Mt of marketable reserves with mine construction slated for late 2011.

New Hope has been on the hunt for investments since it made a $A1.7 billion post-tax profit from selling its New Saraji project to BHP Billiton Mitsubishi Alliance, with this deal struck back in July 2008.

Shares in the Northern gained 6.5c yesterday morning to 111.5c before the trading halt.

New Hope shares are up 1c to $5.09.