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Xstrata close to Drummond deal: report

XSTRATA is reportedly close to securing the Colombian portion of producer Drummond in an $US8 bil...

Donna Schmidt
Xstrata close to Drummond deal: report

According to a Reuters report which cited British newspaper The Sunday Times, Xstrata was the only potential buyer to submit a fully financed bid for the business by the December deadline.

Late last month, another UK newspaper Daily Mail stated that Alabama-based Drummond was considering selling a stake in its South American operations. The Sunday Times noted over the weekend that family-owned Drummond was selling the division by an auction managed by Bank of America-Merrill Lynch.

Reuters said the bank had extended the auction’s deadline to allow bidders, including Vedanta Resources and Essar Global, to arrange financing. However, both reportedly failed to do so.

Neither Xstrata nor Drummond issued a public statement on any possible deal.

In late December, the Daily Mail quoted anonymous sources familiar with the process as saying that Xstrata and Rio Tinto had submitted £5 billion ($US7.8 billion) bids prior to the deadline.

The paper noted that Brazil-based Vale and US-headquartered Peabody Energy might also be interested in the assets, though the sources did not know if bids had been submitted in the second round.

Drummond chief executive Garry Drummond was said to have turned down three previous rounds of takeover discussions because the price point was unsatisfactory.

World-leading coal exporter Xstrata already owns part of the Cerrejon mine and Prodeco complex in Colombia.

Shoal Creek, which utilizes continuous mining and longwall methods, is the only US operation held by Drummond. Its assets in Colombia, where it has had a presence since the 1980s, include the Pribbenow and El Descanso mines, and the Dupela deepwater ocean port.

According to the 2010 BP Statistical Energy Survey, Colombia produced 72.1 million tonnes of coal in 2009, 1.37% of the world total. Its reserves make up just 0.82% of the world total, but are the second-largest reserves in South America behind Brazil.

In total, Colombia holds an estimated 24 billion tonnes of proven and potential coal reserves.

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