China certainly likes a good fight – and a good resources deal, as it is signalling yet again. One might think that the protracted, costly and ugly saga of the failed attempt by Chinese state-owned aluminimum group Chinalco for a $19.5bn investment in Rio Tinto – not to mention the subsequent detention of four Rio executives in Shanghai on spying allegations - would have been enough.
No, no comrade. We have seen a string of other Chinese resources deals (including recent deals for parts of OZ Minerals, a stake in Fortescue Metals Group and last year, Sinosteel’s deal for Midwest, among others).
Now, as the FT reports on Tuesday, Chinese coal miner Yanzhou Coal Mining Co is closing in on Australian coal miner Felix Resources, with a planned bid estimated at about A$3.7bn ($3.1bn) – which, if successful, would amount to one of China’s largest foreign takeovers and its biggest Australian deal to date.
Felix requested a share-trading suspension on Monday pending the outcome of “negotiations regarding a potential change of control transaction”.
The shares, which had traded at less than A$5 this year, last traded at A$16.90. However, the Chinese group was understood to have pitched its offer at about A$19 a share, valuing Felix at about A$3.7bn.
Bloomberg reports on Tuesday that the deal, if successful, would help Yangzhou – China’s fourth-biggest coal producer – gain from rising power demand and surging steel use, increasing its output by more than 10 per cent. In addition, and a nice little bonus for Yangzhou if it lands Felix, is the Australian miner’s stake in XstrataJubilee MinesFelix, a coal mining and exploration company, which owns 15.4 per cent of the Newcastle Coal Infrastructure Group’s new terminal in the port city of the same name. The terminal is due to be commissioned in 2010 with a final capacity of 66m tonnes.
Felix’s fellow shareholders in that venture are BHP Billiton, Centennial Coal, Donaldson Coal, Peabody Energy and Whitehaven Coal.
Meanwhile, shares in Felix, which supplies coal to South Korea and Japan, have jumped 92 per cent this year to A$16.90 in Sydney trading, giving the company a value of about A$3.3bn, adds Bloomberg. And Yanzhou Coal hasn’t had a bad year either, having seen its shares more than double in Hong Kong trading this year, compared with a 42 per cent gain in the benchmark Hang Seng Index. So much for the “clean energy” boom.
The next big hurdle for the bid, of course, as the Chinese would well know, is to get such a deal approved by lawmakers in Australia.
Any possible bid from Yanzhou for Felix would require approval from the Australian Foreign Investment Review Board and the treasurer, Wayne Swan, who makes the final decision on whether foreign investments are in line with Australia’s national interests.
Analysts have said the board is unlikely to block a bid for Felix on national interest grounds, given the producer is not a material supplier to the Australian market. But, who knows? Given the hoo-hah over China’s attempted Rio deal and some increasingly xenophobic politics on both sides, you never can say what happens next.
Another possible spanner could be thrown into the works by a counter-bid for Felix. As Bloomberg notes, Xstrata, which owns the Ulan mine adjacent to Felix’s new Moolarben mine in NSW makes Xstrata, the world’s largest exporter of power station coal, a “logical” potential rival bidder for Felix, according to Credit Suisse analysts, who have raised their Felix price target 17 per cent to A$24 a share.
Likely counter bidders also include China Shenhua Energy, China’s largest coal miner, and Brazilian iron ore producer Vale “due to its well-known strategy to expand its coal business,” Bloomberg added.
Related links:
China in deal for Australian miner – WSJ
China’s record bid for Felix Resources – The Australian
How to do a resources deal Down Under, lessons from Minmetals – FT Alphaville
Sinopec swoops on oil explorer – or does it? – FT Alphaville