Western Canadian Coal gets cozy with NEMI

If the proposed merger between Western Canadian Coal (WTN-T, WTN-L) and NEMI Northern Energy & Mining (NNE.A-T, NNEMF-O) goes through as planned, the combined company will parlay northeastern British Columbia’s coal into more clout on the international market.

That’s the view of Western’s president and chief executive, Gary Livingstone, who says the merger will move the company into the ranks of a solid, mid-tier producer turning out 5 million tonnes of hard coking coal by the end of 2007.

“It’s a bit like a guy and a girl who’ve been going out for a while,” says Livingstone, referring to the merger. “You get to know one another, then you start looking at the next step. Now, we’re en- gaged and we’re looking ahead to a marriage.”

Western and NEMI “got to know one another” through their partnership at the Bellcourt and Saxon project in northeastern B.C. The partnership has been official since March 2005.

In Toronto recently, Western’s stock was up roughly 4.5% or 12 to $2.80 on about 250,000 shares. NEMI shares rose roughly 5% or 7 to $1.45 on about 5 million shares.

Western is offering one of its common shares for every 1.8 common shares of NEMI. Based on both companies’ 30-day average closing prices, that represents a premium of 29% for NEMI’s shares.

If the deal is completed, Western will have roughly 73% ownership in the company, while NEMI will have the rest.

In addition, Western has made available to NEMI a loan of $10 million, pending completion of the deal.

The merger would see NEMI’s hard coking coal reserves and operations at its Trend property combined with Western’s Burnt River pulverized coal injection (PCI) coal and Wolverine hard coking coal reserves and operations. That combination will give the new entity more than 85 million tonnes of proven and probable coal reserves and 98 million tonnes of measured and indicated resources in deposits accessible to the coal processing facilities.

Livingstone says the essence of the takeover is the lower costs that will come from considerable synergies. By having projects in the same geographical area, the companies will make more efficient use of the same port and rail facilities as well as draw from the same labour pool.

Livingstone says such strength in British Columbia will allow it to take full advantage of under-utilized rail and port facilities — an advantage he says coal producers in the rest of the world don’t enjoy.

And while he remains bullish on the long-term price of coal — “we wouldn’t have done the deal if we weren’t,” Livingstone says, he sees cost reductions as the best insurance against any cyclical downturns in the market.

Livingstone also assures that the takeover won’t mean layoffs for any employees at either company’s projects.

“We will be using everybody (currently employed),” he says. “We’re short of people.”

The companies have 30 days to complete their respective due diligence and a definitive agreement will be announced as soon as possible. After such an agreement is reached, the deal will require the approval of NEMI’s shareholders at a meeting scheduled for June 2006.