Whitehaven Coal and Aston Resources have agreed to a merger that will create the largest independent coal company listed in Australia with an estimated market cap of A$5.1bn (US$5.2bn).
Monday’s deal, in which Sydney-listed Whitehaven will acquire Aston for A$2.25bn in shares, is the latest in Australia’s active coal sector, which has already seen a record level of dealmaking this year as companies in China and India seek to secure access to key natural resources.
The combined group surpasses New Hope, which becomes the country’s second-largest independent coal miner by market cap and is itself up for sale.
Earlier this year Whitehaven rejected advances from potential foreign buyers, including China’s Yanzhou Coal, on the grounds that they had not offered enough for the company.
Following the tie-up with Aston, which is controlled by billionaire Nathan Tinkler, the two groups’ mines in south-eastern Australia will be able to share transportation infrastructure and collaborate on marketing operations.
The merger will also allow Whitehaven to broaden its reserves, now mostly thermal coal, to include more metallurgical coal, the type used in steelmaking.
“We see very substantial benefits in being a much larger and more diversified producer,” said Tony Haggarty, Whitehaven managing director and head of the new group.
Whitehaven’s share price has fallen 16.6 per cent in the year to date, including a sharp fall in May after the company said it would not pursue the buy-out offers from foreign groups.
Under the agreed tie-up, shareholders of Aston will get 1.89 Whitehaven shares for each Aston share, and current Whitehaven stockholders will receive a special dividend of A$0.50 a share.
“The merger is sensible, offering efficiency gains and potential synergies from an asset base located in close proximity,” wrote James Stewart, resource analyst with CLSA, who values the merged group at A$6.1bn.
The deal indicates optimism that coal prices will stay buoyant on the back of demand from emerging markets, despite analysts’ forecasts that prices will slide in the near term.
“There is quite an increased supply from Cambodia and Russia that would offset some of the demand growth in China and India,” said Serene SY Lim, a commodities analyst with Standard Chartered. However, “if you look at it on a longer-term basis, on a 10- to 15-year outlook, coal is still the cheapest and most reliable form of energy,” she added.
The wave of inbound investment into Australia this year, including last month’s acquisition of Macarthur Coal by Peabody Energy of the US, has led to the “thinning” of the country’s listed mining sector, according to mining analysts with Citi. Australian coal groups have been involved in a record $11.4bn worth of deals this year, Bloomberg data show.
The acquisition of so many of Australia’s mid-cap miners has created opportunities for the country’s small companies, themselves too small to be “global players”, to fill that gap through consolidation, the analysts said.
As part of the acquisition, Whitehaven will also buy unlisted coal explorer Boardwalk Resources, held now by Mr Tinkler.
Shares in Whitehaven closed down 1.4 per cent in Sydney on Monday, while Aston Resources rose 1.4 per cent.