Xstrata to Buy Gloucester Coal for A$391 Millionadmin
Xstrata Plc, the world’s biggest exporter of power-station coal, agreed to buy Gloucester Coal Ltd. for A$391 million ($319 million) to extend the life of mining operations in Australia’s New South Wales state.
The cash offer of A$4.75 a share, which is 25 percent higher than Gloucester’s latest close, is unanimously recommended by Gloucester’s board, the Sydney-based company said today in a statement to the Australian Stock Exchange. Gloucester shares today jumped as high as A$4.85, indicating some investors may expect a higher bid.
Gloucester produced about 1 million metric tons of thermal and coking coal in the six months ended Dec. 31 and is studying an option to boost output by 40 percent starting in mid-2009 as demand rises from Asian power utilities and steelmakers. Last year, Peabody Energy Corp., the largest U.S. coal company, paid A$2.04 billion for Australian miner Excel Coal Ltd.
“This seems like a very attractive offer and it goes back to the fact that Australian resources assets are incredibly attractive due to the low political risk issues,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. “Xstrata’s bid must give confidence that Gloucester’s planned new mines give definite possibility for development.”
Gloucester shares, which before today had fallen 5.5 percent this year, gained as much as A$1.04, or 27 percent, to A$4.85 on the exchange. They were at A$4.79 at 11:18 a.m. in Sydney.
Gloucester in February reported a 48 percent drop in first- half profit because of lower prices and shipping delays at Newcastle, the world’s biggest coal-export harbor. The company is increasing production of coal burned in power plants to limit the effect of a drop in prices for coking coal, used in steelmaking. It has two mines, Stratford and Duralie, both in New South Wales’ Gloucester Basin.
“Gloucester Coal’s operations further extend the life of Xstrata’s New South Wales mines, with good potential to add the resource and reserve base,” Peter Coates, chief executive officer of Zug, Switzerland-based Xstrata’s coal unit, said in a separate statement.
Itochu Corp., Japan’s fourth-largest trading company, is Gloucester’s largest shareholder with a 5.2 percent stake. Itochu in 2005 bought 4.15 million shares in Gloucester for A$3.32 a share after selling a 10 percent stake in the Stratford coal project to the company.
Gloucester’s board “believes the offer recognizes the potential future growth of coal mining operations in the Gloucester Basin,” Andy Hogendijk, chairman of the Australian company, said in the statement.
Information from: www.bloomberg.com