Since its debut on the ASX in May 2004, Excel Coal has enjoyed a fairytale rise, listing at $A2 and closing yesterday at $A8.40.
Under Peabody’s merger implementation agreement it will pay $A8.50 cash per Excel share, a 10.2% premium over Excel's one-month weighted average share price and a 24% premium of the subscription price of Excel’s $A100 million capital raising in February this year.
The offer price also represents up to 19 times the guidance for net profit after tax for 2005-06 and 15 times the preliminary guidance for net profit after tax for 2006-07. Excel said it expected a net profit attributable to Excel shareholders in 2006-07 of $A120 million. The 2005-06 guidance is for $A95-100 million.
The deal is subject to Excel shareholder approval. Excel’s board said it unanimously recommended shareholders vote in favour of Peabody’s offer.
“The Peabody offer price represents a more than four fold increase in value over a period of just over two years. We believe the offer price represents a premium value for Excel’s existing mines and its various development projects,” Excel chairman Roger Massy-Greene said.
Deloitte Corporate Finance will prepare an independent report on the transaction and Excel’s shareholders will vote on the deal in early October. Peabody Energy said it expected the deal to close early in the fourth quarter 2006.
Peabody’s move expands its presence in Australia and cements its place as the world’s largest private-sector coal company.
"This transaction increases Peabody's position in the world's largest coal-exporting nation, and marks another step in our strategy to expand into high-growth global markets," Peabody chief Gregory Boyce said.
"The combined entity creates one of the largest coal companies in Australia with some of the highest-quality products, mines and reserves. Excel is clearly the premier independent coal company in Australia, and we have very high regard for both the people and the assets."
The combination of Peabody's Australian operations and Excel's assets creates a major new player in the Australian coal sector, with substantial market diversity, a broad portfolio of metallurgical and thermal coal products, both domestic and seaborne customers, and the capacity to utilise multiple railroads and ports.
Peabody, with 2005 sales of 244 million tonnes (240 million tons) and $US4.6 billion in revenues, currently produces just over 9 million tonnes of mostly metallurgical coal per year in Queensland.
Peabody said the purchase provides it with extensive growth opportunities from its core operations, along with major metallurgical and thermal coal mines in the latter stages of development by Excel Coal.
Excel produced 5.7 million tonnes of coal in 2005 and is expected to produce up to 15Mt in 2007, and up to 20Mt in 2008, from coal mines in New South Wales and Queensland.
The transaction also provides substantial synergies in the areas of sales and trading, and reserve holdings in Queensland near existing Peabody operations. Excel has more than 500Mt of metallurgical and thermal coal reserves.
Over the past five years, Peabody has purchased the Wilkie Creek thermal coal mine, acquired the Burton and North Goonyella metallurgical coal mines, developed the Eaglefield metallurgical mine, and developed the Baralaba thermal and PCI mine.
Today’s acquisition also marks a return to New South Wales, where the company has significant experience and success.
Excel currently operates the Wambo opencut mine in the Hunter Valley which produced 3.3Mt of thermal coal in 2005, and is expected to grow to more than 5Mt per year by 2008.
The North Wambo underground mine, which will produce thermal and semi-soft coking coal, is under development and expected to begin shipments in early 2007. The mine will produce 3Mtpa of export coal and ship to customers through the Port of Newcastle.
The Metropolitan longwall operation produced 1.7Mt of hard and semi-hard coking coal in 2005.
The new Wilpinjong opencut mine is expected to produce more than 5Mt in 2007 and is scheduled to ramp up to more than 7Mtpa within two years.
The Millennium opencut mine in Queensland’s Bowen Basin is close to Peabody's existing metallurgical coal mines. Millennium is expected to begin shipments of its hard-coking coal later this year, with 2007 production of 2Mt and reaching up to 3Mt per year by 2009. Millennium offers rail and port synergies with Peabody's existing operations.
Through a farm-in agreement with Conarco Group, Excel may earn up to a 75% interest by the staged spending of $A6 million over the next several years in each of two areas that cover a combined 670,000 hectares in Queensland near existing coal mines and infrastructure.
Excel Coal controls more than 500Mt of proven and probable metallurgical and thermal coal reserves, and substantial additional coal resources, in Queensland and New South Wales.
