Deals for three Aussie resources companies

M&A activity in the Australian resources sector defies the recent drop in global commodity prices.
Consolidation in the Australian resources sector continued unabated this week with three M&A deals reaching critical stages.

The first is a new takeover bid for Queensland Gas Co (QGC) which values the coal seam gas company at A$606 million ($454 million). Santos - one of Australia's largest oil and gas producers - made the A$1.26 per share all-cash offer on Thursday.

Santos and advisors Caliburn Partnership mounted an on-market purchase of QGC shares earlier in the week, picking up 1.9 million shares and increasing its current interest in the business to 3.9%. The offer to buy all of the shares is subject to certain conditions, including acquiring a minimum 50.1% shareholding.

Managing director of Santos, John Ellice-Flint, says the A$1.26 per share offer is a 47% premium to the volume weighted average price of QGCÆs shares over the three month period to October 3. ôIt also represents a 100% premium to the issue price of A$0.63 for the company's one-for-four rights issue announced in August this year,ö says Ellice-Flint.

ôThis is a logical transaction for Santos and is consistent with our strategy to extend and enhance our core Eastern Australian gas business,ö says Ellice-Flint. "QGCÆs coal seam gas assets are a good strategic fit witih our existing gas processing and transmission hubs in Queensland.ö

QGCÆs share price soared on the news, closing up 28 cents to A$1.37 on Thursday and making it likely that Santos will need to increase its offer to stay in the game.

QGCÆs board issued a statement saying it was reviewing the proposal and encouraged shareholders not to take any immediate action. The board is talking up the companyÆs successes to give shareholders pause for thought. ôShareholders should fully appreciate the potential value of QGCÆs assets,ö the board said in its statement, pointing to the companyÆs continuous upgrading of gas reserves and new contractual agreements.

ôSince January 2006, QGCÆs share value has increased by 84% and market capitalisation has grown by 137%,ö says the board.

Santos says it will lodge a bidderÆs statement with the Australian Securities and Investments Commission next week and will fund the acquisition with a debt facility.

Elsewhere in AustraliaÆs resources sector, Excel Coal shareholders have voted in favour of a A$2.04 billion takeover by US-based Peabody Energy Group û a company whose coal products fuel more than 10% of American electricity generation. Shareholders voted on Wednesday to unanimously approve the revised Peabody offer which involves buying all of ExcelÆs shares for A$9.50 each.

Peabody made the bid for Excel Coal, AustraliaÆs largest independent coal mining company, in July but shareholders demanded more money, forcing the US buyer to increase its offer from A$8.50 a share to A$9.50.

Excel Coal has been a shining star in Australia resources sector. In its recent results announcement, the company reported a 56% increase in profit for 2006 versus 2005, and 45% increase in sales revenue over the same period. Much of its product is sold to China. Shares in Excel Coal closed at A$9.47 on Thursday.

Lastly, iron ore explorer Mount Gibson Iron announced on Thursday that it has extended the offer date for its A$248.2 million purchase of Aztec Resources. More than 32% of Aztec shareholders have accepted the offer, and now Mount Gibson has given the others until October 27 to come on board. Mount Gibson launched its takeover bid for Aztec in July.
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