Chinese Coal Giant Yanhzou Abandons Yancoal Takeover
Major Chinese coal company Yanzhou has walked away from their offer to take over Australian company Yancoal. This decision comes after both a successful lobbying attempt to remove the conditions tied to the company, and the value of their deal falling well below their original proposal.
The Labor government had allowed Yanzhou to acquire Felix Resources in 2009, on the grounds that it be listed and headquartered via Yancoal, and also sell down its stake in the company below 70 percent.
The timeline extended in 2012, where Yanzhou was given an extra year to complete the sell down when it acquired Gloucester.
After intensive lobbying, Treasurer Joe Hockey allowed Yanzhou to cancel their 2009 selldown commitment. The official, approved decision reached held that Yanzhou hold a 78 percent stake in Yancoal, and then offer securities valued at $151 million for the other 22 percent of the company, based on the company’s share prices of last July. These terms were agreed to in December of 2013.
However, since then, the value of Yanzhou’s offer had fallen to less than $130 million. In a one-page statement issued at the end of May, Yanzhou announced it was abandoning the bid with no specific explanation.
In researching a reason, one does not have to look very far. China’s coal industry has been failing since the end of last year, and Yancoal is a lose-maker that is potentially facing a “red ink future”. And while China’s coal consumption increased by 2.6 percent in 2013, that’s only a third of the rate of growth in GDP.
Some believe that this deal has left a hole in Australia’s credibility on foreign investment regulation. However, the next deal that comes up will certainly be regarding much more carefully.
Global iron ore production to recover by 5.1% in 2021
Global iron ore production fell by 3% to 2.2bnt in 2020. Global production is expected to grow at a compound annual growth rate (CAGR) of 3.7% to 2,663.4Mt between 2021 to 2025. The key contributors to this grow will be Brazil (6.2%), South Africa (4.1%), Australia (3.2%) and India (2.9%). Key upcoming projects expected to commence operations include South Flank in Australia (2021), Zulti in South Africa (H2 2021), Serrote Da Laje in Brazil (H2 2021) and Gudai-Darri (2022), according to GlobalData, a leading data and analytics company.
Vinneth Bajaj, Associate Project Manager at GlobalData, comments: “Declines from Brazil and India were major contributors to the reduced output in 2020. Combined production from these two countries fell from a collective 638.2Mt in 2019 to an estimated 591.1Mt in 2020. The reduced output from the iron ore giant, Vale, was the key factor behind Brazil’s reduced output, while delays in the auctioning of mines in Odisha affected India’s output in 2020.
“Miners in Australia were relatively unaffected by COVID-19 due to effective measures adopted by the Australian Government, while a speedy recovery in China led to a significant 10.4% increase in the country’s iron ore output.”
Looking ahead, the global iron ore production is expected to increase by 111.3Mt to 2,302.5Mt in 2021. Rio Tinto is expected to produce up to 340Mt of iron ore, while BHP has released production guidance of 245–255Mt, supported by the start of the Samarco project in December, which is expected to produce between 1–2Mt.The company has retained its guidance for Australian mines at 276–286Mt on a 100% basis, due to scheduled maintenance work at its ore handling plant and tie-in activity at the Area C mine and South-Flank mine.
Bajaj added: “The remaining companies are expected to produce more than 600Mt of iron ore, including FMG, whose production is expected to range between 175–180Mt supported by its Eliwana mine that commenced operations in late December 2020, and Anglo American, which is expecting to produce between 64–67Mt. Vale is expected to resume 40Mt of its production capacity, taking its overall production capacity to 350Mt in 2021, with production guidance of 315-335Mt.”