Coal miner Peabody Energy Corporation (BTU) and the steel giant ArcelorMittal SA (MT) have jointly made an offer to acquire all shares of Macarthur Coal Limited (“MCC”), the world’s largest producer of seaborne low volatile pulverized coal injection.
An offer of AU$4.7 million is made for MCC through a newly formed company; 60% of which is owned by Peabody and the remaining 40% by ArcelorMittal. The newly formed company already has a 16% interest in MCC shares.
Shareholders of MCC are offered a cash price of AU$15.50 per share through an off-market takeover offer. The offer price reflects a substantial 39.9% premium to the currently traded price of AU$11.08.
This buyout is subject to at least 50.01% of MCC shareholder approval, Australia’s Foreign Investment Review Board consent and other customary conditions and approvals.
Peabody is targeting production volumes of 35 million to 40 million tons from its Australian platform by 2014 to 2015, up from 27 million tons produced in 2010. In 2010, Peabody’s Australian coal mining operation accounted for 12% of its worldwide mining sales, up from 2009 and 2008 levels of 10%.
Peabody continues to expand its Australian footprint with a view to tap the growing demand for coal in Asian countries. We believe the MCC acquisition, if approved, will definitely boost Peabody’s production from Australia. Macarthur’s present annual production is 3.8–4.0 million tons and it also has a substantial coal reserve of 270 million tons.
In June, Peabody signed a deal with Thiess Investments Pty Ltd to buy off the remaining 5% joint venture interest in an Australian coal mine, the Burton Mine, for AU$35 million. Peabody had acquired 95% of Burton in April 2004.
Peabody Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock. The company primarily competes with the likes of Arch Coal Inc. (ACI) and CONSOL Energy Inc. (CNX).
ArcelorMittal is the world’s leading integrated steel and mining company, with operations in more than 60 countries. Its crude steel production in 2010 of 90.6 million tons represented approximately 8% of the total world steel output.
St. Louis, Missouri based Peabody Energy is the world’s largest private sector coal mining company and a global leader in clean coal solutions. The company owns majority interests in 28 mines in the U.S. and Australia.
