China's Kingho Energy sweetens bid for Carabella Resources

AUSTRALIAN coal juniors have been thrust into the M&A spotlight after privately owned Chinese energy giant China Kingho Energy sweetened its $71.2 million tilt for Bowen Basin play Carabella Resources.

Chinese buyers, hungry for the raw materials for steel-making, are willing to take a long-term view of Australia's beaten-up coal juniors with viable projects.

China Kingho's all-cash sweetened offer of 45c per share was recommended by the Carabella board in the post-Christmas lull, after they had knocked back an initial 42c bid. China Kingho on Monday raised its stake in Carabella to 16.4 per cent through its wholly-owned subsidiary Wealth Mining, from 14.6 per cent

It will be China Kingho's maiden investment in Australia and is a long-term play that will allow the group to diversify its resource base as it plans to invest some $900 million outside China.

China Kingho seems to have a bent to metallurgical coal and Carabella is one of the few listed ASX juniors with exposure to hard coking coal, through its Grosvenor West site.

The group, one of China's largest privately owned energy companies, can wear the high capex costs attached to Grosvenor West, as it waits up to a decade for production to start.

The bid is also cleverly timed, as Carabella is poised to receive key Queensland government approvals for its plum PCI coal asset, Bluff, which could be in production by year-end.

Carabella listed on the ASX at 40c in December 2010, amid strong market appetite for new coking coal projects, raising $12 million. The share price peaked just shy of $3 in 2011.

China's 45-cent bid favours shareholders who bought in pre-IPO, including some of the Carabella's directors. For a sizeable group of disaffected shareholders in Carabella, the takeover offer is a chance to cut their losses particularly those who have raised equity and get out.

The offer must receive minimum acceptances of 57 per cent, and closes January 20.

If successful with its Carabella tilt, China Kingho could also look to pick off sub-scale assets from local coal developers, with Queensland-based Bandanna Resources and the NSW-based Whitehaven Coal possible targets, industry sources said.

Other strategic Chinese players are also looking to take advantage of depressed prices to snap up viable projects. Last month, Chinese steel group Baosteel upped its stake in Perth's Aquila Resources to just below the 20 per cent threshold.

China Kingho's offer has been approved by China's National Development and Reform Commission and is likely to receive two other necessary Chinese approvals, the energy giant said. It is not likely to need FIRB approval, China Kingho said.