Management at Austar is focused on completing mining in the stage 2 area and on developing the new stage 3 area. Underground development in stage 3 commenced in 2009 with commercial longwall production expected to start in 2013, the companies said in their merger presentations.

In conjunction with the stage 3 mining area, Yancoal Australia has committed capital to replace and upgrade specific equipment throughout the Austar coal processing chain to improve capacity and maximise production on the currently under-utilised LTCC machine.

Yancoal parent company and Chinese coal giant Yanzhou is considered a world leader in longwall top coal caving technology and is keen to apply its expertise in Australian mines. It is currently advising Peabody Energy on LTCC at its North Goonyella mine in Queensland.

“The investment in the LTCC technology allowed increased coal recovery rates from Austar, and therefore significantly improved mine economics,” the companies said in its merger presentation.

“Capital investment of approximately $250 million [at Austar, was] expected to be spent over the period 2012 to 2016.”

Austar been operating for more than 60 years under a number of companies and was purchased by Yancoal Australia in 2004, with commercial mining re-commencing in October 2006.

It has historically produced a high quality semi-hard coking coal and in 2011 produced 1.9 million tonnes.

Under a scheme of arrangement between Gloucester and its ordinary shareholders, Yancoal will acquire Gloucester for Yancoal shares, with Yancoal to list on the Australian Securities Exchange as MergeCo.

The Hong Kong Stock Exchange confirmed to Gloucester that Yanzhou Coal may reduce its shareholding in Yancoal Australia Limited from 100% to 78% and Yancoal Australia may proceed with its intended separate listing on ASX, as outlined in its merger proposal.

Gloucester shareholders will meet to vote on the merger scheme and capital reduction on June 4 ahead of its planned implementation date of July 3.