Xstrata bides time as suitors size up Felix

Felix shares rose $2.11 to $19.70 yesterday after the miner told the stock exchange "several parties" had expressed interest in an acquisition without making any formal written offers.

Managing director Brian Flannery said Felix had declined previous offers to sell down stakes in its mines but eventually agreed to field bids for the whole company.

Like Macarthur Coal, Felix has a tightly held share register, with about 49 per cent of its stock held by members of the board. The success of any friendly deal could depend on whether the acquirer achieves an ironclad lock-up agreement covering the board's holding or if directors leave room for a higher offer to emerge.

Industry sources pointed to Xstrata, Rio Tinto, Vale, Peabody Energy and Anglo Coal as the most likely suitors.

But Xstrata was at the top of the list because its Ulan mine is next to Felix's large Moolarben project in the Hunter Valley, and because it and Rio are among the few miners that could use Felix's port allocations immediately to export higher-value coal.

Xstrata could afford to be patient and sit out the due diligence process since a Supreme Court decision last year revealed it had spent four months looking over Felix's books in late 2006 and early 2007.

By early March last year, the high-level discussions had come to nought. On March 21, the then-chairman of Felix, Ian McCauley, sold his 19.2 per cent stake to private US coal group AMCI.

Later that day, the then Xstrata Coal chief executive, Peter Coates, asked Felix's managing director, Brian Flannery, if it was interested in a joint venture over the Moolarben project. They could not agree on a price, and a few days later Xstrata launched a lawsuit challenging the validity of Felix's mining leases.

Felix won the case in the Supreme Court, but it is now before the Court of Appeal. Depending on the decision, Xstrata could appeal to the High Court and continue to block Felix or anyone else from starting construction.

Along with coalmines in Queensland and NSW, Felix has a 15.4 per cent stake in the Newcastle Coal Infrastructure Group, which is building a coal export terminal at the crowded port. When the first stage of the project is completed, in 2010, Felix will be allocated about 4.6 million tonnes of capacity, rising to about 9 million tonnes following a planned expansion.

Felix reported that it is trying to time the $350 million Moolarben project to coincide with its port allocations and its future production would be more weighted towards thermal coal once Moolarben is developed.