Yancoal turns focus to auction for Kestrel coal mine

The Kestrel coal mine in Queensland.

Yancoal shareholders hoping to get a big cash return after dividend payments were suspended may be waiting a little longer than they had hoped, with the Australian-listed coal miner now expected to focus its attention on buying the $US3bn-plus Kestrel mine.

At its August results announcement, it became evident that it was building a $1.5bn war chest for deals, with no interim dividend declared so it could retain cash for “optional corporate initiatives and distributed in future if not used”.

Now that Yancoal has fallen out of the $US2bn-plus Anglo American steel making coal mine auction, with Peabody Energy announced as the winner, there has been hopes the cash for dividends can now be returned to its investors.

But Yancoal will be a bidder in the sale of the Queensland mine that Kestrel is about to now start through Bank of America and Macquarie Capital.

The Kestrel sale was to begin after the conclusion of the Anglo American coal sale process that came to a head at the weekend.

After it was one of three final groups in the mix, competing with a Stanmore Coal-led consortium and another led by Peabody Energy, winning with a $US3.8bn offer, it was out as of Saturday morning Australia time on the Anglo American process.

Yancoal is 62 per cent owned by the Chinese state-owned Yankuang Energy, and while it offers top dollar in auctions, regulatory approval from a Foreign Investment Review Board perspective and sign-off from the Chinese state have been a handbrake on winning in the past.

While it is not so much that FIRB would not agree to a deal or the Chinese would not provide the green light for it to proceed, often what can be a deterrent for a vendor to pick it as the winner for an auction is the time taken to get sign off on deals from a regulatory perspective in the case of Yancoal. For Anglo American, it’s been a widely held view that it wanted a swift outcome on the sale of its coal portfolio, with the move being a defensive play to defend itself from a takeover by BHP.

Anglo American announced a company break-up while it has been fending off advances from BHP, and the hope was that the move would provide a lift to its share price, which would make it harder for the Australian mining giant to gain control of the Johannesburg and London listed business.

Yancoal is understood to have been told it was out of the contest and then brought back in on the final action after improving its offer.

Final bids were due on November 13, with three offers lobbed, including one from Yancoal, another from the consortium led by Stanmore Coal – which is 64 per cent owned by Indonesia’s Golden Energy Resources, 7.6 per cent by Regal Funds and 5 per cent by Matt Latimore – and the US-listed Peabody Energy. Peabody is understood to have brought in plenty of reinforcements, with consortium partners in addition to Indonesia’s BUMA in its Moelis-advised camp.

Stanmore is advised by Grant Samuel.

Sources say that after final bids landed, another round of the auction was run, where the last parties in the mix were asked to improve their bids akin to a “black box” due diligence round.

The value of the assets is believed to be more than $US2bn.

Already, Brisbane billionaire Sam Chong has exercised his option to buy the remaining stake in two coal mines ahead of other suitors in the portfolio, outlaying $1.6bn for the 33.3 per cent stake he did not already own in the Jellinbah East and Lake Vermont metallurgical coal mines.

Working for Anglo has been Goldman Sachs and Morgan Stanley.