Exchange Approves Grande Cache Coal Takeover

Date of Article: February 14, 2012

Source: Calgary Herald

CALGARY - The $1-billion acquisition of Grande Cache Coal Corp. is a "first major step" on a program to add coal-producing assets to its coal-marketing business, one of its Asia-based purchasers says.

Winsway Coking Coal Holdings Ltd. of Hong Kong - the 60 per cent partner in a joint venture with Japanese trading house Marubeni Corp. to buy the Calgary based miner - announced Monday it had received Hong Kong Stock Exchange approval and would hold a shareholder vote on the deal on Feb. 28.

The acquisition is backed by investors including Wang Xingchun, Winsway's controlling shareholder, chairman and chief executive, with 51.71 per cent of its shares, so the vote would appear to be a formality.

In a circular for investors posted on its website on Monday, it said it plans to grow coal production both at Grande Cache's west central Alberta mine site north of the town of the same name and through other purchases.

"The acquisition of the target is the first major step in the vertical integration of the company's business model through investment in mining assets," says Winsway's circular.

"This investment in upstream assets significantly strengthens the company's seaborne coal business. The acquisition of producing assets also complements the existing joint venture with Peabody Energy, which is conducting exploration in Mongolia to secure future upstream supply for the company's Mongolian coal business."

It goes on to point out there are only four major metallurgical coal-producing companies in Western Canada (the others are Teck Resources Ltd., Anglo American PLC, and Walter Energy, Inc.) and that Grande Cache "will provide a strong base for further expansion in the region."

Winsway estimates that a greenfield coal startup in Western Canada would take three to five years to reach production, adding that Grande Cache's management team will "facilitate expansion efforts involving existing operations and external opportunities."

Marubeni has acted as buyers' agent for Japanese steel mills for more than 40 years, working with Grande Cache Coal since 2004.

In a release on its website, it said the acquisition will provide it with "a platform for future growth in the coal sector in Canada."

Grande Cache has previously announced plans to grow from 1.7 million tonnes of coal produced in fiscal 2010 to an annual run rate of 3.5 million tonnes by the end of fiscal 2013.

In a news release Monday, Grande Cache noted that it had agreed to extend the deadline to finalize the sale to March 6 from Feb. 28 because of the timing of the Winsway meeting. Analysts said the stock exchange approval means the deal is practically done.

"With the circular approved and distributed to Winsway shareholders, and Investment Canada recently approving the transaction, the acquisition of Grande Cache Coal is all but complete," said RBC Capital Markets analyst Robin Kozar in a note.

Added Mike Plaster of Salman Partners: "This is the second of two significant regulatory approvals, following Investment Canada Act approval last week, and further derisks the deal, with Grande Cache's share price moving closer to the $10 per share all-cash offer."

Grande Cache shareholders approved the sale in January. The stock price closed Monday at $9.94, up six cents. Shares fell from over $9.90 to $9.21 after a report by a mysterious short-seller called Jonestown Research surfaced Jan. 19, claiming Winsway's imports were less than the company reported and inventories were overstated.

Winsway, which processes and transports coal to China from Mongolia, emphatically denied the charges, and repeated its defence in the circular. Last week, Winsway announced the partners had lined up a Chinese banking group to provide $350 million toward the purchase price and $50 million in working capital.

dhealing@calgaryherald.com