ENRC to gain low-cost coal from Shubarkol buy

Tue Oct 11, 2011

* To pay up to $650 mln to buy stake from ENRC founders
* Acquisition to lift ENRC coal capacity to over 25 mtpa
* Independent shareholders to vote on deal on Nov 7
* CEO mulls future development within platinum sector

By Julie Crust

LONDON, Oct 11 (Reuters) - Miner ENRC plans to buy the outstanding 75 percent of Kazakh coal producer Shubarkol Komir from ENRC's founders for up to $650 million, giving it access to low-cost coal for its existing operations and expansion plans.

Eurasian Natural Resources Corp (ENRC) plans to exercise an option to buy the shareholding from the three founding shareholders, who together own 43.8 percent of the London-listed miner, for $600 million plus assumed debt of $50 million.

As a related transaction, the acquisition will require approval from independent ENRC shareholders at a meeting due to be held on Nov. 7 and, if approved, could be completed by the end of next month, ENRC Chief Executive Felix Vulis told Reuters on Tuesday.

Vulis said he is "pretty confident" that the acquisition will get shareholder approval and that the amount to be paid is a fair price.

"We secured the deal when the price of coal was $45-55 a tonne, today it is twice as much," said Vulis. "We have been through a very thorough appraisal process," he said, noting that both advisors valued the deal in line with ENRC.

Credit Suisse advised ENRC and Lazard & Co. advised the independent non-executive directors.

FTSE 100 miner ENRC acquired a 25 percent stake in Shubarkol for $200 million in cash in February 2009.

The acquisition of Shubarkol, a thermal coal producer that produced about 6.0 million tonnes of coal last year will raise ENRC's coal production capacity in Kazakhstan to more than 25 million tonnes a year.

"This is an important strategic acquisition which secures reliable access to the supply of relatively high quality and low-cost thermal coal," Vulis said.

"We are consuming more than 1 mln tonnes of this coal within our enterprises in Kazakhstan," he said.

Current valuation levels for miners are close to the lows hit during the 2008 crisis, making potential targets cheap, and enabling cash-rich miners such as Glencore to lift minority stakes in existing companies.

ENRC has a 14.35 percent stake in Northam Platinum , a major South African platinum producer, that has seen its shares fall almost a third this year.

"We are pretty much considering our future development within this sector," Vulis said, adding that an announcement would be made in due course.

ENRC said it plans to use about 50 percent of the semi-coke and the majority of the coke produced by Shubarkol within its own operations and will sell the majority of the thermal coal to third-party customers.

Shubarkol has estimated proved and probable coal reserves of about 326.2 million tonnes, as of the start of this year.

Shares in ENRC were down 1 percent at 0959 GMT, in line with a British mining index .

"With an H1 2011 net debt of just $2 million, ENRC is well-placed to fund the acquisition however for us the proof will be in the pudding as ENRC increase product diversification and demonstrate the cost benefits of securing additional raw materials to drive its Kazakh businesses," said Liberum Capital analyst Ash Lazenby.

ENRC ended a long-awaited governance review on Sept. 28, unexpectedly confirming both the chairman and chief executive in their roles as part of a trimmer board that it hopes will revive its underperforming shares.

However, speculation about possible board changes has continued to be reported.

"I don't know where these rumours are coming from. I am very happy with the size of the board and I'm very happy with the review," Vulis said. (sourced Reuters)