Grande Cache Coal gets shareholder approval of buyout

Canada’s Grande Cache Coal Corp. said Jan. 13 that it is making progress with a plan of arrangement with 1629835 Alberta Ltd., a company indirectly jointly owned by Winsway Coking Coal Holdings Ltd. and Marubeni Corp. that has a tentative deal to buy Grande Cache.

This pending deal is the latest in a flurry of mergers and acquisitions activity in the coalfields of western Canada as international players position themselves to feed a growing seaborne market for met coal along the Pacific Rim. That included a 2011 buy by U.S.-based Walter Energy of Canada’s Western Coal Corp.

The arrangement has now been approved by the Court of Queen’s Bench of Alberta and the Grande Cache shareholders overwhelmingly approved the arrangement at a special shareholders meeting held on Jan. 12.

Completion of the arrangement remains conditional on satisfaction of other conditions precedent such as Investment Canada Act approval and the approval of the Hong Kong Stock Exchange. Subject to the satisfaction or waiver of these and all other conditions precedent, Grande Cache anticipates that the arrangement will be completed during February.

Upon completion of the arrangement, the purchaser will acquire all of the issued and outstanding common shares of Grande Cache at a cash price of C$10 per share, for a total cash consideration of approximately C$1bn.

In a Dec. 14, 2011, information circular for shareholders, Grande Cache said that its board in December 2010 decided to look at strategic alternatives. In January 2011, the company retained UBS Securities Canada as financial advisor to the board and a special board committee. UBS then contacted a number of potential interested parties to gauge their level of interest.

Marubeni has had a longstanding customer relationship with Grande Cache. Winsway has also been a customer of the company since 2009 and on a number of occasions representatives of Winsway advised management of Grande Cache that Winsway would be interested in a possible equity investment in a met coal operation located in Canada. In May 2011, at the request of Winsway, senior officers of Grande Cache met with representatives of Winsway and another party to discuss a potential transaction. That eventually led, after offers were taken from other parties, to the current deal.

As for the reasons to seek a sale, the circular said: “Global demand for metallurgical coal surged in late 2010, primarily as a result of increased steel production in markets such as China, India and Brazil and supply issues in Australia. In light of this surge in demand and with the announcement of several transformative transactions by other industry participants, including the approximately $3.3 billion merger between Walter Energy and Western Coal Corp. announced on December 3, 2010, the board determined to re-examine the company’s strategic direction, with a view to maximizing shareholder value.”

Grande Cache is an Alberta-based met coal mining company that holds coal leases containing an estimated 346 million tonnes of coal resources in the Smoky River Coalfield located in west-central Alberta.

In November 2011, the company reported that its fiscal 2012 second quarter (July-September 2011) revenue was C$102.6 million, representing a 26% increase over revenue of C$81.2 million in the same period last fiscal year. Higher sales prices were the main contributor to the increase in revenue as the latest quarter’s average selling price for all coal products was C$232 per tonne, up from C$185 per tonne in the comparable period. The average selling price of met coal, which accounted for 87% of total sales volumes, was C$244 per tonne (US$252 per tonne). The average selling price of met coal in the second quarter of fiscal 2011 was C$193 per tonne (US$186 per tonne).

Revenue for the first six months of the 2012 fiscal year (April-September 2011) was C$182.3 million on sales of 0.84 million tonnes compared to revenue of C$150.2 million on sales of 0.89 million tonnes in the same period the prior year.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.