TALK BACK: Australia Faces Foreign Takeover Wave - Reader
Friday December 5th, 2008 / 6h28
A reader comments on reports that China's Yanzhou Coal Mining Co. and Felix Resources Ltd. are discussing a A$3 billion-plus merger: "The announcment today of Chinese coal producer Yanzhou's possible interest in Felix Resources is a pre-cursor to a massive wave of foreign takeovers threatening to hit the Australian market. "A combination of unbelievable value and the additional leverage gained by a strong U.S. dollar presents unprecedented opportunities for those foreign resource companies prepared to take a five-year view. "Targets such as RIO, FLX, PNA and WHC, represent a grab bag of well valued fundamentals and high grade assets." Here's Dow Jones Newswires' latest story: =2nd UPDATE: Felix Resources Shares Soar On Takeover Talk (Adds analyst comment, coal price outlook) By Ross Kelly Of DOW JONES NEWSWIRES SYDNEY (Dow Jones)--Felix Resources Ltd. (FLX.AU) said Friday that it is the subject of ongoing takeover interest amid reports it is talking to China's Yanzhou Coal Mining Co. (1171.HK) about a A$3 billion plus bid. Felix shares shot up almost 100% on the news and by 0445 GMT, were up 35% to A$7.35, giving the company a market capitalization of about A$1.4 billion. Yanzhou was unavailable for immediate comment. Trading in its shares was halted in Hong Kong shortly after trading commenced on the Australian Stock Exchange. A transaction between Yanzhou and Felix would add to the flurry of offshore investment activity in Australia's resources sector, often characterized by foreign companies attempting to capitalize on lower share and commodity prices to secure supply. "Felix confirms that there is ongoing interest in a potential change of control transaction," the Brisbane-based company said in a statement, after announcing July 28 and repeating in October that it had commenced discussions with a number of parties. Felix said that all the expressions of interest remain incomplete, non-binding and subject to completion of due diligence and other conditions. Andrew Harrington, coal analyst at Patersons Securities, said it was realistic that Felix could be sold for as much as A$3 billion, despite analysts' views that contract coal prices will fall in 2009. Merrill Lynch Thursday forecast coking coal contract prices will fall by 44%-60% next year. Harrington said that, even with a 60% dip, Felix shares would have a net present value of A$16.00 plus each, assuming a fixed Australian currency value of 70 U.S. cents. "You run that case through with 77 cents fixed currency and you get A$14.00 and change," Harrington said. "A company like Felix and most of the sector, trading at 2,3,4 times earnings, is very drastically undervalued." Tolhurst Associate Director Tim Breen said short covering of Felix shares was partly behind this morning's explosive rally. "Obviously people are short coal (exposure), based on what the coal price has been doing," Breen said. In its statement Friday, Felix was responding to a report in the Australian Financial Review, which said it is in the late stages of due diligence with Yanzhou. Citing unnamed industry sources, the report said a large contingent of executives from the Hong Kong and Shanghai-listed company were onsite Thursday at Felix's Ashton coal operation in New South Wales state as part of the due diligence process. Yanzhou already has a presence in Australia, acquiring the Southland mine in NSW in 2004 for about A$30 million. China's largest coal miner, Shenhau Energy Co., last month spent A$300 million obtaining a coal exploration license in Australia. In September, Linc Energy Ltd. (LNC.AU) agreed to sell coal tenements in Queensland state to China's Xinwen Mining for A$1.5 billion. Harrington said he doubted that a Yanzhou purchase of Felix would be blocked by Australia's Foreign Investment Review Board. "It's not unusual in coal mining that most of the companies, or the assets directly, are partly owned by a number of different Asian consumers," he said. "And with a market value around A$1 billion, it's a relatively small company." Felix produces semi-soft coking and thermal coals and either owns or has a significant interest in three coal mines in Queensland state and two in NSW. -By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; ross.kelly@dowjones.com (TALK BACK comments may well be submitted by readers who have a financial interest in securities that are being discussed.) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. 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