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A team of Asian buyers is paying $1-billion for Calgary’s Grande Cache Coal Corp, betting on steady long-term demand for coal used in steel making despite a recent pullback in production amid growing global economic gloom.
China’s Winsway Coking Coal Holdings Ltd. and Japan’s Marubeni Corp. said Monday they will pay $10 a share in cash for the metallurgical coal producer, a 70-per-cent premium to the miner’s Friday closing price of $5.87 on the Toronto Stock Exchange.
The bid comes just weeks after Grande Cache shares hit a 52-week low of $3.22, around the same time coal prices plummeted nearly 30 per cent to $240 (U.S.) per tonne on uncertainty over slower growth in China, the world’s largest steel maker.
Grande Cache’s stock has been trading below its industry rivals in part because of its higher-cost operations in west-central Alberta. Still, analysts say the bid values the company more in line with its peers.
“We are very pleased to announce this transaction and the considerable value it brings to our shareholders,” said Robert Stan, chief executive officer of Grande Cache.
Hong Kong-listed Winsway supplies imported coal to the Chinese steel industry and is one of Grande Cache’s main customers for the Chinese market. Marubeni is one of the largest trading houses in Japan and has a 40-year history working with Grande Cache, a company which forecasts sales of 2.2 million tons to 2.4 million tons for the year ended March 2012. The company plans to increase production to 3.5 million tonnes by March 31, 2013.
The acquisition suggests demand for coal will remain strong in both Japan and China, the world’s first and second largest importers of the commodity, respectively. China is particularly hungry for steelmaking coal, as it builds out its infrastructure to meet the needs of a population growing both in size and wealth.
While the market is nervous about short-term coal prices, “Japan and China are still going to be the largest consumers of met coal going forward,” noted BMO Nesbitt Burns analyst Meredith Bandy in an interview.
Canada is also a natural market for customers in China, Japan and South Korea, Ms. Bandy noted.
The Grande Cache deal is the latest in a series of coal acquisitions, many of which involve Canadian companies.
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