The Wall Street Journal
23 December 2009

MELBOURNE, Australia—Macarthur Coal Ltd. offered to pay 668.5 million Australian dollars (US$589.6 million) for rival Gloucester Coal Ltd.

Macarthur, based in Brisbane, Australia, also agreed to buy out the minority stakes of China's Citic Resources Holdings Ltd.'s in Macarthur's two existing mines.

A takeover of Sydney-based Gloucester would allow Macarthur to diversify production and become the fifth-biggest coal producer in Australia, behind BHP Billiton, Rio Tinto, Xstrata PLC and Anglo American PLC.

The deal is the latest in a steady stream of takeovers in the Australian coal sector and follows a successful A$3.54 billion bid for Felix Resources Ltd. by China's Yanzhou Coal Mining Co.

Macarthur is offering 0.84 share for each Gloucester share. The offer values Gloucester at A$8.16 a share, a 25% premium. Macarthur also is offering A$8 a share in cash.

Noble Group Ltd., which has an 87.7% stake in Gloucester, agreed to accept the all-share offer and will emerge with a 24% stake in Macarthur. Noble also is negotiating the sale of a 79.9% stake in its Donaldson coal assets to Macarthur for A$185.8 million and agreed to sell its 25.3% share in the Middlemount project for A$207.5 million, giving Macarthur total control of the project.

"Macarthur Coal will have greatly expanded scale and diversity in terms of geography, mines, ports and products," MacarthurChief Executive Nicole Hollows said in a prepared statement.

Noble acquired its stake in Gloucester at A$7 a share.

"These transactions provide Noble with an opportunity to consolidate its coal interests in Australia and continue to promote growth of independent coal suppliers in this region," William Randall, head of Noble's energy coal and carbon division, said in a prepared statement.

Coal analyst Andrew Harrington of Patersons Securities said the offer would diversify Macarthur's business geographically and by product but that Macarthur appeared to be paying dearly. "They're paying A$8 for an asset that was only worth A$7 not long ago and a lot less previously to that," he said.

Gloucester sold two million metric tons of coal in the year ended June 30. Of that, 25% wascoking coal used in making steel and 75% was used in power generation. The miner, which has a market capitalization of A$536.9 million, plans to boost output to 3.5 million tons a year starting in 2014.

Macarthur has a market capitalization of A$2.47 billion and sold 4.6 million metric tons of coal in the year ended June 30.

P.R. Venkat in Singapore also contributed to this article.