The deal, announced on Friday, could result in seven separate joint ventures which Macarthur hopes will add value to future negotiations with parties interested in purchasing stakes in potential coal projects.
The agreement comes on the back of a farm-in arrangement signed in 2001 with Chinese-owned CITC Australia Coal Exploration and Bowen Basin Exploration (BBE), owned by Macarthur chief Ken Talbot. Under the agreement, Macarthur was required to spend $A7.5 million towards exploration on the tenements over four years.
On deal completion, Macarthur will hold a 65% interest in West/North Burton tenements, and between 85% and 90% in the remaining tenements. CITC will retain 10-15% interest in the tenements, giving Macarthur an important strategic partner to coal-hungry China.
“The increased ownership in the tenements involved in the farm-in arrangement provides Macarthur Coal with even more impetus to commit to the near-term development of a number of new Bowen Basin projects,” Macarthur chairman Keith De Lacy said.
“The prospects subject to the agreement also provide the opportunity for Macarthur Coal to expand its product range to include coking coal, a high growth segment of the coal market.
“Coking coal has been confirmed at the Olive Downs tenement, and preliminary tests have indicated that coking coal is also present at Moorvale West and Vermont East,” De Lacy said.
Macarthur’s news was met favourably by Deutsche Bank, which on Friday rated the producer a “buy”.
Brokerage UBS alo upgraded its rating to a "buy", reasoning a 21% slide in Macarthur's shares since June 2005 provided an opportunity for investors. UBS said the share price decline was due to a lowering in coal price expectations by the market and rising costs at Macarthur's operations. The brokerage set a price target of $A7.40.
Macarthur plans to spend $A250 million over the next five years developing five new mines by 2010. Development will be funded by new partners, debt and cash reserves.
The deal is subject to shareholder approval expected mid-December this year.
Macarthur was trading at $A6.18 this morning.
