One of the first Chinese ventures into Australia’s coal industry literally came from a fire sale.

Rebadged as Austar, the former Southland mine in New South Wales’ Hunter Valley was scooped up by Yanzhou Coal for $US23 million in October 2004, following a Christmas Day underground fire which not only closed the mine but eventually put its former owner Gympie Gold into receivership.

Under the operating name of Yancoal Australia, Austar has become the first mine in the nation to employ the Chinese-developed longwall top coal caving mining process. The mine is now awaiting approval for the Stage 3 expansion, expected to cover an additional 12 longwall blocks and increase the mining workforce from 75 to 275 from start-up in 2012.

Jumping forward to today, investors are eager for news of a suspected takeover of Australian mid-tier miner Felix Resources by Yanzhou after the Australian Financial Review newspaper reported that representatives from the Chinese miner had visited Felix's Ashton coal mine in New South Wales.

Despite denials from Yanzhou, the takeover speculation within the last fortnight has lifted Felix shares from low ground of $4.88 to its present $8.49.

The spike, however, has not been enough to lift Felix shares to pre-financial crisis levels of $23 – over 270% higher.

Factoring in an Aussie dollar which has fallen over 30% in the same period, even the almost short-term doubling of Felix shares could make the company a handy acquisition for the Chinese miner, especially given that Felix is a producer with two open cut mines in Queensland’s Bowen Basin and the key Ashton open cut and longwall operations in the Hunter Valley.

Felix also has an 80% stake in the promising 610 million tonne thermal coal resource at the Moolarben joint venture development which involves Sojitz Corporation of Japan and Korea Electric Power Company.

Felix’s share price devastation over the past few months plays to a similar theme of other mid-tier coal producers which are starting to look increasingly vulnerable to foreign takeovers.

In the ideal pre-commodity downturn times of June, Gloucester Coal shares were trading over $13, while Macarthur Coal was over $21.

Shares in both companies are now trading at a mere $3.40 and $3.51 respectively.

Although corporate coffers are shrinking around the globe and lending markets are showing little prospects of easing up, there are reports of Chinese companies on the hunt for takeover opportunities.

Some attention-grabbing news on this front came from the South China Morning Post newspaper which reported that China National Petroleum Corporation was preparing to make a takeover bid for Adelaide-based Santos, as a result of the South Australian government’s lifting of the 15% shareholder cap on November 29.

However, Santos has said the report was pure speculation, and the federal government’s blocking of a takeover of Woodside Petroleum by oil major Shell in 2001 on the grounds of national interest sets a precedent that makes such a move by CNPC unlikely to succeed.

On the other hand, a Sydney Morning Herald newspaper report a few days ago referred to Chinese officials who say there is a top-level government directive for state-owned companies to go out and buy international resources assets at current discount prices.

Whether Chinese aluminium group Chinalco ramps up its stake in Rio Tinto to up to 15% is currently under debate, but over-financed Rio may have to sell off some of its 75% stake of Coal & Allied, according to Merrill Lynch analysts this week, who suggested the miner might be forced to off-load some of its “Tier 1” assets to meet future debt obligations.

Meanwhile, some investment professionals even believe the stockpiling of iron ore, coal and other commodities within China is a deliberate strategic move to not only secure lower contract prices next year, but to also drive down the cost of buying into the Australian resources sector.

Whatever the case, major Chinese companies have demonstrated their interest as they splash out huge sums just for coal permits alone.

Less than a month ago, Chinese producer Xinwen Mining Group reaffirmed a commitment to purchase the Emerald (Teresa) coal tenements in Queensland from Linc Energy for $A1.5 billion.

“Despite the current financial problems with international markets, China still needs good quality thermal and coking coal. We are working very closely with our regulators in order to complete the acquisition,” Xinwen subsidiary chairman Chen Jie said at the time in a letter to Linc.

Just days later, the nation’s biggest coal producer, China Shenhua Energy, backed its drive into the Australian industry by forking out $299.9 million to the New South Wales government for the 190 square kilometre Watermark area exploration licence near Gunnedah.

“Those were pretty impressive prices for what is exploration ground and I suspect that some of those prices would come back in the current environment,” Paterson Securities coal analyst Andrew Harrington told International Longwall News.

He said the purchases along with the rumours around Santos, if true, indicate there is an ongoing view from large Asian companies that there is a robust picture for commodities going forward, especially for energy companies.

On whether Chinese companies could decide to purchase Australian coal companies outright when they are paying so much for exploration assets, Harrington said there would be stumbling blocks.

He said the high percentage cash backing of many Australian coal companies along with the value of their assets exceeding the current market cap value meant foundation shareholders would not want to sell, “so any buyer would have to take that into account”.

When asked about the Felix takeover, Harrington had a measure of confidence it would go ahead.

“Felix has repeatedly said they expect to be making an announcement before Christmas and they obviously would have pulled the plug on any process that was seen as not being at a good level and having a realistic chance of being concluded,” he said.

Speaking off the record, another analyst told ILN that Felix remains the most likely candidate for a takeover but the mid-tier producers of Gloucester Coal and Macarthur Coal are other possible targets.

Interestingly, Merrill Lynch recently gave “underperform” ratings for both companies, saying the former was at risk of significant price falls and volume drops from steel mills while Macarthur was the most exposed to coking coal prices and volumes.

Merrill’s assessment reflects the prevailing attitude for 2009 coal markets to be far off this year’s highs.

Looking at the weakening coal markets, Harrington said a lot of the impacts were already currently “more than priced into” the share price of Australian-listed coal companies.

Should this be the case, then there are at least several bargain-buy Australian coal companies available right now, although there could be two less before this month is over, providing that billionaire Clive Palmer-backed Mineralogy’s bid for Waratah Coal is approved and the Felix takeover does materialise.