Gloucester Coal, Yanzhou Push Ahead with Australia Merger

SHANGHAI, Mar. 13 (SMM) -- Yanzhou Coal Mining Company (Yanzhou Coal) became the first domestic listed coal company that successfully acquired Australian coal mine through share exchange and cash purchase.

Yanzhou Coal said in a statement on March 6 that the merger between Gloucester Coal and Yancoal Australia would create Australia's largest coal listed company. Under the deal, Yanzhou Coal will hold a 78% stake in the merged company, with Gloucester owning the rest.

Yanzhou Coal’s equity-based Joint Ore Reserves Committee (JORC) compliant coal reserves in Australia are 3.47 billion mt after the merger, up 765 million mt or 28.27%. Its JORC compliant coal reserves are 882 million mt, up 13 million mt or 1.46%. Its output of run-of-mine coal and commercial coal increase by 16% and 12%, respectively. In addition, most Gloucester Coal’s coal resources are coking coal, which will further improve the categories of coal produced by Yanzhou Coal in Australia. Meanwhile, Gloucester Coal owns about 12% stake in the Port of Newcastle located in New South Wales, which is about 25-95 km from Gloucester's coal mines and is also close to most mines owned by Yancoal Australia, thereby providing convenience for the company’s coal products transportation in the future.

Overseas mergers and acquisitions (M&A) of energy and mineral resources have been the leading position in overseas M&A cases by domestic companies for many years, and M&A cases in coal industry ranked the second among all energy and mineral resources M&A cases in 2011, only following oil industry.

China's coal consumption makes up the largest proportion in the entire energy consumption structure, and coal is a kind of non-renewable resources. In this context, the majority of enterprises begin to shift their focus to overseas coal resources along with growing domestic coal consumption. A source from one of China’s five power groups reveals that companies will not lose money from investing in coal mines over the next ten years, but will secure greater benefits than investing in other industries.

Coal resources are very attractive to enterprises at home and abroad, and enterprises will not miss any opportunities to secure coal resources. However, there are also many failed cases, like China's Shenhua Energy Company’s failure to acquire stake in Mongolia's biggest coal mine.