Hunnu board gives blessing to $400m bid

THE strong interest in Mongolian resource stocks has borne fruit for shareholders in Hunnu Coal, with an agreed takeover offer only 18 months after it went public.

By InvestSMART · 13 Sep 2011

By InvestSMART ·
13 Sep 2011

Comments

THE strong interest in Mongolian resource stocks has borne fruit for shareholders in Hunnu Coal, with an agreed takeover offer only 18 months after it went public.

Thai coalminer Banpu plans to spend $400 million on Hunnu in a recommended takeover pitched at $1.80 a share.

The company went public with its shares being offered at just 20? in February last year.

Along with holding $36 million in cash to finance its growth plans, Hunnu has interests in several prospects in the south and middle Gobi areas, claiming total reserves of 843 million tonnes.

The company's shares were added only last week to the ASX 300 index.

Hunnu, which is run by Mongolian national George Tumur, says it has interests in as many as 15 potential deposits in the country, the largest being the Unst Khudag prospect, which is believed to have 676 million tonnes of coal. It also has an 85 per cent interest in the Tsant Uul project, which is due to start production by the end of the year, with output projected to reach 1.5 million tonnes next year and doubling to 3 million tonnes annually by 2013.

Hunnu bought a 70 per cent stake recently from Rio Tinto in the Altai Nuurs coking coal project, which it says has an "exploration target of 250 million tonnes to 500 million tonnes". This was disclosed during a recent investor presentation by the company.

The main constraints to Hunnu's ambitions are Mongolia's hostile climate and limited infrastructure. However, it does have the advantage of being close to large demand centres in China, such as Hebei province, a large steel production centre north of Beijing.

Banpu's bid for Hunnu is conditional on the target obtaining regulatory approval for its proposed projects in Mongolia, along with 90 per cent acceptance.

For Banpu, the bid marks a continued upswing in its growth plans, coming a year after it paid $2.4 billion for local coal producer Centennial Coal.

Hunnu's shares closed 34? higher at $1.725 - a slight discount to the indicated offer price.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What is Banpu's takeover offer for Hunnu Coal and what are the key terms?

Thai coalminer Banpu has made a recommended takeover offer for Hunnu Coal valued at about $400 million, pitched at $1.80 a share. The bid is conditional on regulatory approval for Hunnu's proposed projects in Mongolia and achieving 90% acceptance from shareholders.

How did Hunnu Coal shares react after the takeover announcement?

Hunnu shares jumped 34% and closed at $1.725, a slight discount to the indicated $1.80 offer. The stock had also only just been added to the ASX 300 index the week before, increasing investor attention.

What coal assets and reserves does Hunnu Coal claim to own?

Hunnu says it has interests across the south and middle Gobi regions and claims total reserves of 843 million tonnes. Its largest prospect, Unst Khudag, is believed to contain about 676 million tonnes, and the company holds a 70% stake in the Altai Nuurs coking coal project (with an exploration target of 250–500 million tonnes).

What projects and production forecasts has Hunnu Coal disclosed?

Hunnu holds an 85% interest in the Tsant Uul project, which is due to start production by the end of the year. Management projects Tsant Uul output to reach about 1.5 million tonnes the following year and to double to roughly 3 million tonnes annually by 2013.

What financial resources does Hunnu Coal have to support growth?

According to the company, Hunnu had about $36 million in cash earmarked to help finance its growth plans, alongside its portfolio of Mongolian coal interests.

What are the main risks and constraints to Hunnu Coal’s Mongolian projects?

The article highlights Mongolia's hostile climate and limited infrastructure as the main constraints to Hunnu's ambitions. However, Hunnu benefits from geographic proximity to large Chinese demand centres such as Hebei province.

How does Banpu’s offer for Hunnu fit with its broader growth strategy?

The Hunnu bid continues Banpu’s expansion push; it comes about a year after Banpu paid $2.4 billion for Australian coal producer Centennial Coal, signalling an ongoing upswing in the company's growth plans.

Has Hunnu been involved in any recent deals with major miners?

Yes. Hunnu recently bought a 70% stake from Rio Tinto in the Altai Nuurs coking coal project, a deal disclosed during an investor presentation that included an exploration target range of 250–500 million tonnes.