Asian group bids $1B for Grande Cache Coal

In an unusual move, two firms from traditional rivals China and Japan have teamed up to buy Alberta coal producer Grande Cache Coal (GCE-T) at a hefty premium, despite choppy times for the metallurgical coal industry.

Hong Kong-listed Winsway Coking Coal Holdings, a major supplier of coking coal to the Chinese steel industry, and Marubeni, a Japanese trading house involved in many commodities, bid $10 a share in cash, or $983 million, for Grande Cache on Oct. 31.

The friendly offer represents a 112% premium to Grand Cache’s 20-day volume-weighted average trading price and a 70% premium to its closing price the day before the bid. 

Robert Stan, Grande Cache’s Calgary-based president and CEO, said in a prepared statement that Marubeni has a 40-year history of buying coal from the company’s mine, while Winsway is one of its main customers for the Chinese market. Winsway will reportedly have a 60% interest in the joint venture, with Marubeni controlling the rest.

Grande Cache produced 1.3 million tonnes of clean coal from its leases in west-central Alberta’s Smoky River Coalfield in its fiscal year ended March 31. An expansion program underway since fiscal 2010 is expected to boost output to around 2 million tonnes per year by March 2012, and 3.2 million tonnes per year by March 2013. The company is the last remaining Canadian pure-play coking coal company with mines in Canada.

Strong demand from steel producers in China coupled with flood-related supply disruptions in Australia drove prices for
metallurgical coal to record highs this year. 

Increased uncertainty amid the global economic slowdown has led many customers to be more cautious with their purchases, however, and several major coal producers have cut their sales guidance, leading to a volatile metallurgical coal market.

This has sent coal mining equities on a rollercoaster ride. Shares of Grande Cache, for example, were trading as low as $3.22 just a few weeks ago after reaching a high of nearly $12 in January and $9.50 in July.

According to Bloomberg, there have been $23.4 billion worth of takeovers of coal mining companies valued at $100 million or more announced this year. There were $21 billion of deals announced in 2010.

The bid for Grande Cache follows on the heels of Alabama-based Walter Energy‘s (WLT-T, WLT-N) US$5.3-billion takeover of Vancouver’s Western Coal in April. Two months later, Alpha Natural Resources (ANR-N) paid $7.1 billion for metallurgical coal producer Massey Energy in the largest coal deal since Teck Resources (TCK-T, TCK-N) bought out Fording Canadian Coal Trust in 2008 for $10.4 billion.

With Canada’s last pure-play coking coal company all but swallowed up, investors have started betting which producer will be next. Shares of Toronto-based Cline Mining (CMK-T), which has a coal mine in Colorado and development projects in B.C., jumped nearly 20% to $2.11 a share on the day the Grande Cache deal was announced.

Cline forecasts production of 2.5 million tonnes of saleable metallurgical coal from its New Elk coal mine in 2012, and has a 52-week share price range of 99¢-$5.04.

Shares of Grande Cache rose $4 on 77 million shares traded following news of the takeover bid, and traded for $9.75 at presstime on Nov. 1.