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Tuesday, December 27, 2011

Mongolian Coal merger and acquisition still hot to trot

Tue, Dec27, 2011

It is reported that the stampede of coal M&A isn’t slowing down in the land of Genghis Khan. After successful buyouts of Hunnu Coal and QGX coking coal assets over the past six months, the latest company with Mongolian coal deposits to move into the crosshairs of acquirers is Guildford Coal Terra Energy unit. Newcastle based Guildford Coal originally planned to list Terra Energy, which is expected to produce its first coal from the South Gobi project in Mongolia in the first half of next year, on the Australian Securities Exchange and hired UBS to advise on the process.

A float in the second quarter of 2012 remains under consideration. However, Guildford Coal is having its head turned by expressions of interest from parties looking to acquire some or its entire 70% stake in Terra Energy. Mr Craig Ransley Guildford Coal’s non-executive chairman declining to identify the parties said “It’s from global players and we’ve had a lot of interest. They are being evaluated.”

He said that “There is a lot of others that have talked a lot of talk, but they are hundreds or thousands of kilometers away from the border. We’re the only ones that are close to actually producing, so I expect that interest will probably ramp up once the mining licenses are granted. We’ll be the only junior in Mongolia that will actually be mining.” Mongolia, together with the southern African nation of Mozambique, has become a hotspot for investors seeking to unlock new deposits of coking coal that can be exported to steel mills in Asia. The country biggest coking coal development the Tavan Tolgoi project is being circled by many of the world biggest miners including Peabody Energy of the US and China Shenhua.

However, developing many of the biggest coal deposits in Mongolia is expensive and technically challenging as they are located far from railroads that can bring in heavy mining equipment and provide an export route for the coal. Terra Energy resource is located around 30 miles east of two operating mines, including one owned by Hong Kong-listed SouthGobi Resources, producing a combined 5 million tons of coal annually that is sold to customers in northern China’s Gansu and Shanxi provinces and Inner Mongolia region.

Guildford Coal says a mine with an annual production capacity 1 million tonnes to 2 million tons of coal could be built at the South Gobi development site. It would produce a mix of coking coal, used in steelmaking and thermal coal for power generation.

(Sourced from The Wall Street Journal)

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