BT: Abterra to buy stake in China coal mining firm

Published December 20, 2007

ACQUISITIONS

Abterra to buy stake in China coal mining firm

It'll pay 188m yuan for 49% share; deal includes 30m yuan profit guarantee

By MATTHEW PHAN

MINING and logistics firm Abterra yesterday signed a conditional agreement to buy 49 per cent of a Chinese coal mining company for 188 million yuan ($37 million).

The seller is Shenzhen Manfu Industrial Co, from which Abterra plans to acquire part of the Shanxi Tai Xing Jiao Zhong Coal Industry Company (Tai Xing).

Tai Xing's main asset is the Jiao Zhong Coal Mine in Shanxi, which produces high-quality coking coal.

It has reserves of 10.24 million tonnes of coal and annual production capacity of 150,000 tonnes. Production started in 1986.

Abterra said that the acquisition was in line with 'plans to expand the scope of its business activities, vertically and horizontally, into the production of coal and coke, and other synergistic businesses'.

The firm is involved in developing iron ore mines in Australia, India and Indonesia and selling the ore to steel mills in China. It also owns a stake in a firm that processes coal into coke.
Abterra said on Tuesday that it would acquire 22.8 per cent of Zuoquan Xinrui Metallurgy Mine Co Ltd for about $77.8 million.

Payment for the Tai Xing stake will be in two stages - an initial 94 million yuan in cash, then the remainder when the seller meets certain obligations.

Abterra said that it would fund the acquisition - which represents about 8 per cent of its market value as of Tuesday's close - with the proceeds from a rights issue that took place in October.

Seller Manfu, which now owns 80 per cent of Tai Xing, has guaranteed that Tai Xing's net profit would not be less than 30 million yuan for the year ending Dec 31, 2008.

If the target is not met, Manfu will compensate Abterra for 49 per cent of the shortfall.

As security for the guarantee, Manfu will deposit 14.7 million yuan in a bank account.

The transaction is contingent on Chinese government approval and other conditions.