Noble may strike it rich with sale of Gloucester
Noble Group’s Australia-listed coal mining subsidiary Gloucester Coal could be sold to China’s Yanzhou Coal Mining for US$2 billion (S$2.6 billion) or more and create Australia’s biggest independent coal miner.
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By FELDA CHAY
21 December 2011
Noble Group’s Australia-listed coal mining subsidiary Gloucester Coal could be sold to China’s Yanzhou Coal Mining for US$2 billion (S$2.6 billion) or more and create Australia’s biggest independent coal miner.
The talks are ongoing and both Gloucester and Yanzhou Coal, which is listed in Hong Kong, Shanghai and New York, are on a trading halt as news of the potential deal spreads across markets.
Said Gloucester in an announcement: ‘The trading halt is necessary as Gloucester expects to make an announcement in connection with a possible change of control transaction, but is not yet in a position to make the announcement.’
Noble, which owns 64.5 per cent of Gloucester, was up 4.5 per cent at S$1.16 on the news, which analysts say is positive for the company. It was the most actively traded stock yesterday, with 60.6 million shares changing hands.
Said UOB Kay Hian analyst Eugene Ng: ‘We are positive on the deal if it goes through. Noble’s track record is such that if value is there, they will sell their stake and reinvest.’ According to Mr Ng, Gloucester accounts for between 10-20 per cent of Noble’s entire commodities portfolio.
Another analyst, who cannot be named because he is not authorised to speak with the media, also said that the deal is positive for Noble, which is ‘known to recycle capital for their business if valuations are right’.
Bloomberg, citing a person with knowledge of the matter, said that Yanzhou Coal plans to acquire Gloucester for at least US$2 billion through a cash-and-stock bid. This would be a 41 per cent premium to Gloucester’s market value of A$1.43 billion (S$1.9 billion), based on Monday’s closing share price. The acquisition will likely be made by Yancoal Australia, Yanzhou Coal’s Brisbane-based unit.
While some have played down talk of a US$2 billion price tag for Gloucester, Mr Ng said that it is quite possible for a deal to be inked at that price. ‘The amount seems to be high but ... Gloucester is a strategic asset for them (Yanzhou Coal) so they would pay a premium for it. Also, there are not that many companies that they can buy,’ he said.
Yanzhou Coal is China’s fourth-largest coal producer. The company is required to float at least 30 per cent of its Australian business on the local exchange by end-2012 as a condition of its A$3.3 billion takeover of Australia’s Felix Resources in 2009. This means that Yanzhou Coal could be using Gloucester as a backdoor route for listing in Australia.
Yanzhou Coal’s board secretary and deputy general manager, Zhang Baocai, said last week that the company was considering a reverse takeover to fulfil its commitment to Australian regulators.
Said another analyst who also cannot be named: ‘Yanzhou Coal needs to pay a premium because it needs to get listed.
‘Also, the deal could provide them with some level of railroad access which could enhance their network, which is also another reason why they would pay a premium.’
Gloucester said on its website that it is a founding member of the Newcastle Coal Infrastructure Group, which received approval from the New South Wales Government to build and operate a third coal export terminal in the Port of Newcastle. The company also has long-term rail contracts currently in place ‘that are broadly aligned with the production forecasts’.
The third analyst also noted that Gloucester’s share price has come down significantly over the last six months. The firm, which hit a peak of A$9.58 during the period, closed at A$7.03 on Monday. ‘So the premium we are looking at (41 per cent) is a premium only to its current share price,’ said the analyst.
The 41 per cent premium is also below what was paid in the biggest deal in Australia this year involving producing assets. Peabody Energy paid a 47 per cent premium in its US$5 billion takeover of Macarthur Coal.
UBS and Citi are advising Yanzhou Coal on the deal, and Lazard is advising Gloucester.