New Hope faced with another takeover challenge

ACQUIRING capable coal explorers might prove to be more difficult than capturing independent coal producers, as Northern Energy Corporation’s board unanimously rejects New Hope’s recent $A193 million cash takeover offer at $1.50 per share – a 43% premium to the previous day’s trading price.

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The NEC board found the offer undervalued the company as its Maryborough and Elimatta projects in Queensland were “high-quality growth assets with significant further value to be unlocked”

As there are no synergies with its own coal mining operations in the state, New Hope chairman Robert Millner told ILN on Friday the offer was made because of the explorer’s assets.

NEC directors also considered New Hope’s offer “highly opportunistic” and timed to “take advantage of short-term share price weakness associated with the MRRT and delays in mine approvals”

“The board considers this offer inadequate,” NEC chairman Dr Chris Rawlings said.

“This offer has come as the company is on track to begin coking coal production at Maryborough in 2012.

“We are also currently testing several expansion options at Maryborough and we will provide the market with these updates in due course.”

NEC was also displeased with the amount of conditions in New Hope’s bid, and will discuss these further when it releases its own target statement.

New Hope’s offer became known to the market on Friday while NEC went in a trading halt the previous day with suspicions raised that Chinese steelmaker Xinyang Iron and Steel Group might have launched a takeover bid.

The Queensland coal producer’s bid was a 43% premium to the closing price of NEC on Wednesday last week.

With Centennial Coal snapped up by Thai energy giant Banpu, there are a handful of listed independent coal producers left in Australia.

Whitehaven Coal has long been tipped as the next takeover target after China’s Yanzhou Coal Mining acquired Felix Resources through a $3.3 billion takeover offer last year.

But Centennial turned out to be the next target, with some industry observers believing that Whitehaven’s board is holding out for a generous offer.

Macarthur Coal was subject to bids from New Hope and Peabody earlier in the year, but the significant stakes held by CITIC Resources and steelmakers ArcelorMittal and POSCO in this company make such moves a challenge – not to mention the Gillard government’s plans to profit-tax coal miners.

Southern Cross Equities recently said Australian coal companies with secure infrastructure arrangements would attract high takeover premiums.

NEC is on track to start production from its 500,000 tonnes per annum Colton hard coking coal project within its Maryborough project in 2012, and recently secured a port allocation for this amount from the first stage development of the Wiggins Island Coal Export Terminal.

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

The explorer’s Elimatta open cut project in the Surat Basin hosts 106Mt of marketable reserves with mine construction slated for late 2011.

To export the thermal coal from this project, NEC aims to secure an allocation of 5Mtpa from the second-stage of WICET, which is designed to sync in with the development of the planned Surat Basin Rail.

New Hope has been on the hunt for investments since making 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.

“Obviously we have been looking at a lot of different companies in this space, and at this present time we think Northern Energy is our best target,” Millner said on Friday.

NEC shares are up half a cent to $1.58 this morning. They gained 39.5% on Friday to close at $1.555.

New Hope shares are down 3c to $5.26 this morning.