A pair of Asian companies have teamed up to buy Grande Cache Coal Corp. (TSX:GCE), a major producer of steelmaking coal, for $1 billion in cash.
Hong Kong-listed Winsway Coking Coal Holdings Ltd., a key customer of the Calgary-based coal miner, has paired with Japanese trading house Marubeni Corp. for the friendly takeover announced Monday.
The deal is the latest involving a Chinese company buying into the Canadian resource sector, where Asian companies have acquired major mining, oilsands, natural gas and potash assets in the last two years.
Grande Cache is a producer of metallurgical coal and holds coal leases covering more than 22,000 hectares in the Smoky River coalfield in west-central Alberta.
The company is expected to sell 2.2 million to 2.4 million tonnes of coal in its current financial year and increase that to 3.5 million tonnes in its 2013 financial year.
The buyers see the Calgary company as a major supplier of coal to fire the blast furnaces in their steel mills in the coming years.
Demand for steel in China, which has roughly half of the world’s steel production capacity, has been soaring as the country builds roads, highways, bridges, factories and office buildings.
China Investment Corp. acquired a nearly 20 per cent stake in Vancouver-based Teck Resources, Canada’s largest producer of metallurgical coal, in 2009 for US$1.5 billion.
As well, soaring Chinese demand for electricity is diverting that country’s coal supplies towards power production.
BMO Capital Markets analyst Meredith Bandy noted other deals by the Winsway-Marubeni partnership could be in the works with Toronto-listed SouthGobi Resources Ltd. (TSX:SGQ) a possibility.
Ivanhoe Mines Ltd. (TSX:IVN), which is developing the Oyu Tolgoi mine in Mongolia, holds a 57 per cent stake in SouthGobi, which has metallurgical and thermal coal deposits in Mongolia.
“Winsway has partnered with SouthGobi to import coal into China. With Marubeni, Winsway could be a potential buyer of Ivanhoe’s 57 per cent stake in SouthGobi,” Bandy wrote in a note to clients.
Grande Cache president and CEO Robert Stan said the deal was a compelling transaction for shareholders.
“In addition, Marubeni has had a long standing business relationship with the corporation and has a 40-year history with the corporation’s mine,” Stan said in a statement.
“Furthermore, Winsway is one of our main customers for the Chinese market,”
The offer Monday is for $10 a share, a 70 per cent premium over the closing price of Grande Cache’s shares on Oct. 28, the trading session before the offer was announced.
Shares in the company jumped $4 or 68 per cent to close at $9.87 on the Toronto Stock Exchange on Monday.
RBC Capital Markets analyst Robin Kozar had rated Grande Cache “underperform” with “above average risk” and a $9-price target before the sale was announced.
Kozar said Monday the deal “reflects full value.”
The offer will require approval by shareholders at Grande Cache and Winsway and regulators. A Grande Cache special shareholder meeting is expected to take place in January with an eye towards closing the agreement in February.
The transaction is part of a growing trend that has seen companies from Asia, particularly China, South Korea and Japan, acquire mining and other resource companies around the world.
Chinese companies have also helped finance iron ore exploration in northern Quebec as well as oilsands projects in northern Alberta.
Earlier this year, Chinese companies acquired a minority stake in the Syncrude oilsands project and a stake in potash properties in Saskatchewan.
Grande Cache said it has agreed not to solicit another offer and will also give the Asian partnership an opportunity to match any competing bids.
The deal includes a break fee of $50 million, plus $10 million in costs, payable by the company if the deal does not go through under certain circumstances. The agreement also includes a break fee of $100 million, plus $10 million in costs, payable to Grande Cache by the acquirers under certain circumstances if the sale is not completed.
Winsway is a Hong Kong-listed company that supplies coking coal from around the world to the Chinese steel industry.
Marubeni is one of the largest Japanese trading houses involved in wide range of industries including metals and mineral resources, transportation machinery, energy related commodities, food, textiles, materials, pulp and paper and chemicals.