THE proposed $8 billion merger between Gloucester Coal and Chinese-owned Yancoal Australia has reached another milestone after receiving approval from the Australian Federal Government.
Deputy Prime Minister Wayne Swan issued a statement in early March stating that the merger had been given the go-ahead subject to certain conditions.
Firstly, the merged entity, Yancoal, must remain headquartered in Australia, and continue production and supply arrangements on a commercial basis. Secondly, Yancoal is required to list on the ASX by the end of this year.
In late December 2011, Gloucester announced the proposal to the ASX. Both parties carried out due diligence regarding the merger and it was completed by early March, with some amendments.
The primary modification was that Yancoal must contribute about $300 million less debt to the combined entity.Another revision included a 1 per cent reduction of Gloucester shareholders’ ownership in the fi nal company to 22 per cent, with Yancoal’s current Chinese owner Yanzhou Coal Mining Company retaining 78 per cent of the final entity.
However, under the Federal Government’s separate conditions, Yanzhou must reduce its ownership to less than 70 per cent of Yancoal by the end of 2013.
Also, eligible Gloucester shareholders will receive $3.15 cash for each Gloucester share held, down from the $3.20 stated in the original offer.
Gloucester’s board and major shareholder Noble Group, which owns 64.5 per cent, have unanimously backed the proposal in the absence of a superior offer.
“This transaction provides Gloucester shareholders with the opportunity to participate in a globally significant coal company that is expected to be Australia’s largest listed pure-play producer,” Gloucester chairman James MacKenzie said.
“The Gloucester board unanimously believes shareholders should support the proposal as it is provides an opportunity to participate in the benefi ts of creating a world-class coal producer and, separately, the opportunity to receive cash payments of $3.15 per share in the form of a special dividend and capital return,” Mr MacKenzie said.
Yancoal owns several coal operations in Australia including the Ashton, Austar, Cameby Downs and Moolarben mines. It is also one of six companies comprising the Newcastle Coal Infrastructure Group (NCIG), which is constructing the NCIG terminal at the Newcastle Port. The facility is expected to have a final coal export capacity of 66 million tonnes per annum.
Gloucester has several coal mines in the Hunter Valley and Gloucester Basin regions in NSW, and what equates to about a 50 per cent stake in the Middlemount coal mine in Queensland’s Bowen Basin.
Despite gaining approval from the Federal Government, the merger still requires several other regulatory approvals from both the Australian and Chinese Governments.


By Lorna Seatter