Yanzhou Coal plays coy over news of possible Felix purchase

By Wang Ying  |   2008-12-6  |     NEWSPAPER EDITION

YANZHOU Coal Mining Co, China's fourth-biggest producer of the fuel, said it conducted studies on potential projects and has yet to make a final decision on any acquisitions.

"The company has not yet entered into any definitive agreement with any overseas coal mining companies," Yanzhou Coal said in a statement to the Hong Kong stock exchange yesterday.

The Australian Financial Review newspaper reported that Yanzhou Coal was in talks to buy Brisbane-based Felix Resources Ltd for more than A$3 billion (US$1.9 billion).

Felix Resources Ltd rose by the most in almost 20 years in Sydney after the news report. Felix jumped 37 percent to A$7.43 at the close in Sydney, its biggest gain since February 1989. The company, which flagged approaches in July, yesterday said there's continuing interest in a takeover, without identifying any groups. Yanzhou Coal yesterday halted its shares in Hong Kong, citing the release of "price-sensitive information."

Chinese mining investors may start pursuing acquisitions in more advanced countries after the global economic slump lowered project values and increased choice, Global Mining Corp said this week. Major shareholders of Felix, which owns three mines in Australia and a stake in a coal port, expect a price that may be more than A$15 a share, the newspaper said.

Felix could be valued "in that ballpark certainly and higher, I could justify a higher price than that," said Tom Sartor, a mining analyst at ABN Amro Morgans Ltd, who has a target price of A$14.01 on the stock. "It would diversify Yanzhou's geography and operating risks."

Lower coal prices

China Shenhua Energy Co, the nation's biggest coal producer, last month said it paid A$299.9 million for an exploration license in Australia as it expands overseas to gain supplies. Prices for thermal coal, which accounts for about 60 percent of Felix's output, may drop 16 percent next year to US$105 a ton, RBC Capital Markets said on Wednesday. That's still almost double the price last year.

Executives from Yanzhou visited Felix's Ashton coal mine in New South Wales state on Thursday to study the company's accounts, the newspaper reported. Felix mines soft coking coal, an ingredient in steel making, and thermal coal, used by power stations, in New South Wales and Queensland.

Should Yanzhou succeed in buying Felix it will have beaten rivals, including ArcelorMittal, the world's biggest steel maker, and iron ore producer Cia Vale do Rio Doce, the newspaper said. Felix shares surged to more than A$18 a share in August on talk about a Vale bid.

Felix is also building the A$405 million Moolarben mine in New South Wales. The company is part of the Newcastle Coal Infrastructure Group that's building a new terminal at an estimated cost of A$1 billion.

"It's got a great asset in Moolarben and a share in a port, which is worth a lot," ABN Amro's Sartor told Bloomberg News.