China and U.S. Race for Australia’s Coal (BTU, YZC, CEO)

by Paul Ausick | April 6, 2010 11:08 am

Australia leads the world in coal exports, with some 261 million metric tons shipped in fiscal year 2009. The country produces two main types of coal: black coal, much of which is exported; and brown coal, most of which is burned in Australia to generate electricity.

Most of Australia’s exported coal goes to Japan, Korea, Taiwan, and China. Over 150 million metric tons of brown (steam) coal is exported to those four countries and about 80 million metric tons of black (metallurgical) coal. India, which takes very little brown coal, is the second largest importer of Australian metallurgical coal at nearly 24 million metric tons.

A relatively small coal company, Macarthur Coal Ltd. is currently the object of attention in a battle between US coal giant Peabody Energy Co. (BTU[1]) and Noble Group, a Hong Kong-based firm that owns a controlling interest in Australia’s Gloucester Coal Ltd.

Macarther offered to buy Gloucester in December 2009 for about $670 million. Noble Group, which owns 87.7% of Gloucester, offered to buy the remaining shares for $117 million, placing the value of Gloucester at $943 million.

Enter Peabody, which says that Macarthur is overpaying for Gloucester, and offered to pay $3 billion for Macarthur if it would drop its bid for Gloucester. Peabody upped its offer by nearly 10% yesterday.

Macarthur shareholders meet next week to decide on the deal with Noble Group. Peabody wants a deferral. If the Noble bid succeeds, the Hong Kong firm gets Gloucester at a bargain price, and Peabody’s offer will disappear.

Peabody’s already mines more than 24 million tons of Australian metallurgical and steam coal a year. The Macarthur purchase would add about 5.5 million tons immediately, with that amount to double by 2015. Peabody’s Australian production would increase by about 50% by 2015 in that scenario.

In August 2009, China’s Yanzhou Coal Mining Co. Ltd. (YZC[2]) purchased Australia’s Felix Resources for $3.5 billion, and Britain’s BG Group signed a deal with China’s CNOOC Ltd. (CEO[3]) under which BG would sell CNOOC a stake in its coal bed gas assets.

Noble Group is chasing returns, not coal. Peabody is chasing the coal. This is a slightly different battle than we usually see because Noble is basically an Hong Kong investment house, not a mainland company seeking natural resources to lock up for future needs.

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