Yanzhou Coal Said in Talks to Buy Vale’s Stake in Mine

By Brett Foley - May 10, 2012
BLOOMBERG
Yanzhou Coal Mining Co. (1171) is among companies in talks to buy Vale SA (VALE5)’s stake in an Australian coal mine for more than A$500 million ($503 million), said people with knowledge of the matter.

Yanzhou and potential buyers from India are studying data on the Integra coal mine in New South Wales state and may make final offers as early as this month, said the people, declining to be identified as the process is private. Vale (VALE) owns 61 percent of the mine, according to its website. Some minority shareholders may also sell their stakes, the people said.

Vale, the world’s biggest producer of iron ore, is trimming assets as a drop in price of the steelmaking raw material and a slowing economic expansion in China erodes profitability. The company owns other coal assets in Australia, including a stake in the Carborough Downs coking coal operation in the Bowen Basin and a $10 billion project in the Galilee Basin. Both are in Queensland state.

The spot price of iron ore has declined 22 percent from a year-high in September, according to The Steel Index.

Bank of America Corp. is advising Vale on the sale, the people said. Zhang Baocai, Yanzhou’s Shandong-based spokesman, did not answer calls to his office and mobile phone yesterday. Brett Fraser, a Vale spokesman in Brisbane, did not immediately return calls to his office and mobile phone seeking comment.

Yanzhou in December agreed to buy Gloucester Coal Ltd. (GCL) for about A$2.1 billion in cash and shares to almost double its coal output in Australia, the world’s biggest exporter of the commodity. The company bought Felix Resources Ltd. for A$3.1 billion in 2009 and agreed in September to acquire two coal units of Wesfarmers Ltd. for A$296.8 million.

Underground Mine

Vale, also the world’s second-biggest nickel producer, got 1.8 percent of its sales from coal last year, according to data compiled by Bloomberg. The Rio de Janeiro-based company this month named Roger Downey as head of its coal and fertilizers unit, the fourth replacement of a top executive in less than six months.

The Integra mine is in the Hunter Valley region and includes an open-pit and underground mine producing coal used in energy generation and steelmaking, according to Vale’s website. Toyota Tsusho Corp. owns 28 percent while steelmakers Nippon Steel Corp., JFE Holdings Inc. (5411) and Posco each old 3.6 percent, according to the Register of Australian Mining.