INTRODUCTION

Welcome to the August edition of the Australian Resources Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients who are interested in the Australian resources industry.

This publication brings together a brief summary of information on recently completed deals, market rumours and potential opportunities, and relevant regulatory updates.

CORRS ADVISED:

  • Whitehaven Coal in relation to its AuD$142 million takeover of Coalworks, and the AuD$5.2 billion acquisition offer from Tinkler Group PTY Ltd
  • MMK in relation to its proposed AuD$558 million scheme of Arrangement with Flinders Mines Limited
  • Stanmore Coal in relation to its commitment to secure port capacity in the WiCEt secondstage expansion, and the AuD$36 million funding agreement with Sprint Capital Partners (HK) Limited

RECENT ANNOUNCEMENTS

ASX-listed BHP Billiton announced on 22 June 2012 that it will establish a replacement mining area, Appin Area 9, at the Appin Coal Mine to sustain operations at its illawarra Coal business in new south Wales. BHP Billiton will invest us$845 million into establishing Appin Area 9, which will have a production capacity of 3.5 mtpa. Appin Area 9 is expected to be operational in 2016 to replace production at the West cliff Mine, when most of the coal in the West Cliff Mine will have been extracted. BHP Billiton has indicated that all necessary regulatory approvals in relation to the development have been granted.

In response to speculation about BHP Billiton's intention to sell a minority stake in its Olympic Dam project, the Sydney Morning Herald reported that a BHP Billiton executive, Andrew McKenzie, has denied the rumour. MacKenzie noted that the idea was "interesting" but the company was not considering a sale.

On 13 July 2012, Whitehaven announced that it had received an indicative and non-binding offer for AuD$5.20 cash per share from a subsidiary of Tinkler Group Pty Ltd, through a scheme of arrangement. 1 tinkler Group is an entity controlled by Nathan Tinkler. this offer represents a 50% premium to the AuD$3.45 closing price on 13 July 2012 and tinkler Group has confirmed that at least 48.3% of shareholders have expressed an interest in the scheme. Whitehaven's committee of directors not associated with the bidder has noted that the proposal is still conditional and subject to a committed funding package.

Tinkler Group is intending to attract an additional 16.7% of Whitehaven's register to participate in the scheme of arrangement. However, it has been rumoured in the Australian Financial Review that tinkler Group may struggle to do so. the report further noted that it is unlikely that Tony Haggarty, Whitehaven's chairman, and Andy Plummer, who owns 7% of Whitehaven, will take the offer as it currently stands. if the additional 16.7% interest in Whitehaven is not secured, tinkler Group will need to raise around AuD$900 million new equity.

On 4 July 2012, AsX-listed Whitehaven Coal announced that it has obtained more than 90% of the shares in AsX-listed coalworks and will now seek compulsory acquisition of all of Coalwork's remaining ordinary shares. 2

US-based Cliffs Natural Resources Inc. (Cliffs) announced on 10 July 2012 that its wholly owned subsidiary, Cliffs Australia Coal Pty Ltd, has agreed to sell its 45% interest in the sonoma joint venture coal mine to Queensland-based QCoal sonoma Pty Ltd (QCoal) for AUD$141 million. QCoal's acquisition is subject to the three other joint venture participants (JS Sonoma Pty Ltd, CSC Sonoma Pty Ltd and Watami (QLD) Pty Ltd) not exercising their pre-emptive right within the 60 day pre-emptive right period. Cliffs expects the sale to be completed towards the end of 2012.

The ASX-listed coal mining company Rocklands Richfield announced on 27 June 2012 that it continues to vigorously defend claims by minority shareholders of HLM Coal Australia Pty Ltd (HLM), in which rocklands holds a 60% interest. Frank Farrall and Alan Prowse, who collectively hold the remaining 40% interest in HlM, commenced litigation against rocklands for alleged breaches of the shareholders agreement and opportunity loss. the plaintiffs claim that their interest in HlM is worth AUD$108.6 million, based on the value of Linyi Mining Group's takeover bid for rocklands. linyi is a subsidiary of China's Shandong Energy.

Despite Rocklands' ongoing litigation, it has been reported that linyi is continuing with its offer to acquire all of the issued shares in Rocklands. On 16 July 2012, Rocklands announced that linyi had received an unconditional notice from the treasurer stating that the Australian Government does not object to Linyi's acquisition of Rocklands.

On 2 July 2012, russia's MMK issued a notice to terminate the scheme implementation Agreement (SIA) with AsX-listed Flinders Mines Limited after the exclusivity period under the siA ended on 30 June 2012. 3 the deal was delayed after being disputed by MMK's minority shareholder, Yelena Yegorova. the appeal against Ms Yegorova's injunction on the deal was set down for 2 July 2012 but has been adjourned until 1 August 2012. Following MMK's notice, Flinders announced on 4 July 2012 that it has retained Citgroup Global Markets Australia Pty Limited and Adelaide Equity Partners to assist with recommencing discussions with third parties in relation to its development of the Pilbara Iron Ore Project in Western Australia.

On 26 June 2012, ASX-listed iron ore mining company Western Desert Resources (WDR) announced that it will raise capital of up to AuD$102.5 million through a placement to sophisticated and professional investors and an underwritten entitlement offer to eligible WDR shareholders. the placement, and an option issue accompanying the placement, are expected to raise AUD$70 million and AUD$17.5 million respectively. the entitlement offer is expected to raise AuD$15 million. the capital raised will be used to bring WDR's Roper Bar iron ore project in the northern territory into production. to this end, WDR is also seeking project finance to make up the balance of the capital required.

ASX-listed Stanmore Coal and ASX-Listed Cockatoo Coal have been granted authority by the Australian Competition and Consumer Commission to negotiate with the Surat Basin Rail joint venture to secure rail capacity. 4 stanmore Coal and Cockatoo Coal are two of the four miners selected by the Wiggins Island Coal Export Terminal (WICET) for its second-stage expansion at Port of Gladstone in Queensland. Access to the Surat Basin rail line is necessary for coal to be transported from the surat Basin coal mines to WICET. the other miners in the WICET second-stage expansion are Switzerland-based Xstrata and ASX-listed Aquila Resources.

In related news, Stanmore Coal announced on 28 June 2012 that it has entered into an AuD$36 million funding agreement with Greatgroup Investments Limited, an investment vehicle managed by Hong Kong-based Sprint Capital Partners (HK) Limited. 5 the capital raised will be used to fund stanmore Coal's bid bond and equity contributions associated with WICET and the related rail capacity commitment deeds. upon completion of the funding agreement, Sprint Capital will hold up to a 25% interest in Stanmore Coal. On the day of the announcement, stanmore's share price closed at AUD$0.385, which is 7% higher than the closing price of the previous day.

ASX-listed International Coal (ICX) announced on 21 June 2012 that it has entered into a farm-in joint venture agreement with Queensland Coal Investments (QCI), a wholly owned subsidiary of Hancock prospecting. under this joint venture, QCI can earn up to a 51% interest in ICX's Bundaberg Project tenements in the Maryborough basin by funding exploration expenditure of up to AUD$3 million. ICX and QCI expect to commence significant exploration activities in the Maryborough region within the next 12 months.

RECENTLY COMPLETED DEALS

On 12 July 2012, ASX-listed Aquila Resources announced that the sale of its 50% interest in the Isaac Plains Coal Mine to a wholly owned subsidiary of Japan's Sumitomo Corporation has completed. the sale generated AuD$430 million for Aquila and the company now has in excess of AuD$500 million in cash and liquid assets to fund its iron ore and coking coal projects. the Isaac Plains Coal Mine is now jointly owned by sumitomo and Brazil's Vale in equal shares.

The ASX-listed Gloucester Coal merger with the Chineseowned Yancoal australia was fully implemented on 6 July 2012. As part of the merger, Yancoal Australia issued a total of 218 million Yancoal Australia ordinary shares and 87 million CVR shares to Gloucester shareholders. Gloucester was delisted from ASX at close of trading on 10 July 2012.

Footnotes

1 Corrs is advising the Whitehaven Coal committee of independent directors on this transaction.
2 Corrs is advising Whitehaven Coal on this transaction.
3 Corrs is advising MMK on this transaction.
4 Corrs is advising Stanmore Coal on this transaction.
5 Corrs is advising Stanmore Coal on this transaction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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