(EnergyAsia, December 29 2011, Thursday) — The following is an edited press release issued by Hong Kong-based commodities trader Noble Group, the majority owner of Australia’s Gloucester Coal, which is targeted for merger by Yancoal Australia Limited.

China’s Yanzhou Coal Mining Company Limited announced that it has entered into an agreement in relation to a proposed merger with Gloucester Coal Limited, under which Gloucester’s assets would be combined with Yanzhou’s Australian coal assets under an ASX-listed merged company, Yancoal Australia Limited.

The Yanzhou assets to be vended into the merged company include its interests in the Austar coal mine, Ashton joint venture, Moolarben joint venture, Yarrabee coal mine, Newcastle Coal Infrastructure Group and Wiggins Island Coal Export Terminal.

Under the proposed merger, all of Gloucester’s ordinary shares would be acquired by Yancoal, in exchange for Gloucester shareholders electing to receive either all ordinary shares in Yancoal or a combination of ordinary shares in Yancoal and contingent value right (CVR) shares.

The proposed merger contemplates that Gloucester shareholders would own 23% of Yancoal, subject to the fulfillment or waiver (as applicable) of the conditions in the merger proposal deed entered into by Yanzhou, Yancoal and Gloucester.

The proposed merger is subject to a number of conditions, including the completion of due diligence by both parties validating the relative value of the Yancoal assets and Gloucester as specified in the proposed merger, the approval of Gloucester shareholders under a scheme of arrangement, the approval of Gloucester shareholders of a capital reduction that will enable a capital return payment, the approval of Yanzhou shareholders as well as Australian and Chinese regulatory and listing approvals being obtained.

Noble has stated to Gloucester’s independent directors that, subject to approval by the Noble board of directors and in the absence of a superior proposal, it intends to vote its shareholding in favour of the proposed merger and would elect to receive all ordinary shares as scheme consideration.

Noble currently controls 64.5% of the ordinary shares in Gloucester.

Noble said it welcomes the proposed merger as it reflects the long-term strategy it has been working on together with the Gloucester board to create a leading Australian listed coal supplier of scale and diversified product mix.

Noble said it also welcomes the proposal to realise approximately A$3.20 cash per share by way of a fully franked special dividend of approximately A$0.56 per share payable prior to the effective date of the merger and a capital return of approximately A$2.64 per share effected prior to the effective date of the merger and payable six months after implementation of the merger. (US$1=A$0.96).

The cash component will crystallise a significant portion of the value in Gloucester shares, while also allowing Gloucester shareholders to retain an ongoing interest in the combined Gloucester and Yancoal assets.

Noble notes the CVR proposal offered under the Proposed Merger which would provide up to A$3 of protected value to Gloucester shareholders. Since acquiring control of Gloucester, Noble has consistently stated its desire to ensure minority investors in Gloucester receive fair and equitable treatment as shareholders in a Noble controlled company.

Consistent with this desire, Noble has elected to waive its rights to the CVR entitlement to enable maximum value protection to be available to minority shareholders in Gloucester. Noble considers this would be a fair and equitable outcome for Gloucester’s minority shareholders.

The merged group will have 11 operating mines in Australia’s New South Wales and Queensland states, significant product diversity and flexibility, a leading infrastructure position and world-class board and management team.

Shareholders in the merged company will also benefit from the availability of significant funding facilities that will be arranged by Yanzhou. This will provide a capital structure which is capable of funding the merged company’s substantial embedded growth options while enhancing returns to shareholders.

In the longer term, the merged company is expected to have very significant cash flow generation which will underpin a progressive dividend policy.

It is Noble’s intention to hold its shares in Yancoal for value accretion.

Noble Group chairman and CEO, Richard Elman, said: “We are excited by the prospect of the proposed merger which envisages the creation of a world class, multi product, multi location, Australia-listed coal company.

“The merged company will be a major force in the global seaborne energy and carbon coal markets, bringing together the parties’ complementary expertise and assets, while maximizing the use of the merged group’s port entitlements.

“The vision for the merged company aligns perfectly with Noble’s stated approach to creating bulk commodity pipelines, developing high quality assets from the ground up and then looking to re-cycle capital, while retaining a strong interest in an enhanced business.”