Gloucester set to merge with Chinese firm

Gloucester Coal shareholders have approved a merger deal with Chinese state-owned company Yancoal Australia, creating what is expected to be the nation's largest listed coal company.

It is the biggest investment by a Chinese state-owned company in Australia's coal industry, continuing a trend of state-backed firms seeking to shore up China's resource security.

Treasurer Wayne Swan and the Australian Foreign Investment Review Board have approved the merger, with Chinese regulators still to approve it.

Although the deal is officially a merger, it is in effect a takeover.

Yancoal's parent company Yanzhou Coal - China's fourth largest coal miner - will control 78 per cent of the new entity, Singapore-based commodities giant Noble will hold 13 per cent through its Gloucester holding, and Gloucester's remaining shareholders nine per cent.

The board would also be dominated by Yancoal nominees.

Morningstar equities analyst Gareth James was cautiously predicting a $4 billion to $5 billion market capitalisation for the new entity, to be called Yancoal.

That would rival the recent Whitehaven Coal merger with Nathan Tinkler's Aston Resources merger.

Gloucester shareholders will receive $639 million, or $3.15 per share capital return, as part of the merger deal.

The cash and scrip bid was valued by independent experts Deloitte at between $9.35 and $9.48 per Gloucester share, including the share price and capital return.

Gloucester shares were down 12 cents, or 1.75 per cent, at $6.75 on Monday, outperforming the broader market which fell just over two per cent.

The merger would create an $8 billion company - with assets including interests in 11 mines and coalfields - according to Gloucester chairman James MacKenzie.

Those thermal coal dominated assets include Yancoal's Ashton mine in the Hunter Valley of NSW with Gloucester's coking and thermal assets in NSW and Queensland.

It will carry high net debt of $3.9 billion, at a time when Port of Newcastle thermal coal prices have fallen by around $US10 a tonne since March.

Mr James said the debt was a concern, but the scale and size created by the merger would create synergies, which was a positive.

Mr MacKenzie said the merged company would save between $220 million and $380 million, much of that through using excess port capacity in NSW.

The merged group expected to increase production from 12 million tonnes at present to between 25 million and 33 million tonnes a year by calendar 2016, Gloucester said.

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