Western Canadian Coal proposes to NEMI

If the proposed merger between Western Canadian Coal (WTN-T, WTN-L) and NEMI Northern Energy and Mining (NNE.A-T) goes through as planned, the combined company will parlay its focus on 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 of the deal. “You get to know one another, then you start looking at the next step. Now we’re engaged 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 of 2005.

In Toronto on Apr. 11 Western’s stock was up roughly 4.5% or 12 to $2.80 on roughly 250,000 shares. NEMI shares rose roughly 5% or 7 to $1.45 on roughly 5 million shares traded.

Western is offering one of its common shares for every 1.8 common shares of NEMI. Based on both companies’ 30-day average closing share 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 a 27% stake.

In addition, Western has made available to NEMI a trade support facility of $10 million to be put in place pending completion of the deal.

The deal would see NEMI’s hard coking coal reserves and operations at its Trend property combined with Western’s Burnt River pulverized coal injection coal and Wolverine hard coking coal reserves and operations. That combination, the companies say, will give the new company 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 more efficiently make 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 said — he sees cost reductions as the best insurance against any cyclical down turns in the market.

Livingstone also gave assurances that the takeover wouldn’t mean any layoffs for labour at any of the two companies 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 NEMI’s shareholders approval at a meeting scheduled for June 2006.