Yancoal Australia Ltd reports US$1.85B Kestrel completion

Yancoal Australia Ltd ASXYAL said on Thursday it completed the purchase of an 80 per cent interest in Queensland's Kestrel Coal Mine for US$1.85 billion in upfront cash, subject to closing adjustments. Yancoal will recognize attributable production, revenue and earnings from the mine starting Oct. 1.

Yancoal shares fell 6.64 per cent to A$5.62 on the ASX as of 1:04 p.m. AEST Thursday, the ASXYAL quote showed.

The company bought the entire share capital of Kestrel Coal Group, which holds the interest in the Bowen Basin mine. It gives Yancoal an indirect 80 per cent interest through the acquired company, with the remaining 20 per cent of the mine outside the transaction.

Yancoal paid the upfront consideration using cash on hand and an initial draw from a five-year, US$1.2 billion syndicated acquisition loan. Its separate five-year, US$200 million working capital facility was still undrawn at completion, according to the Oct. 1 market release.

The release does not state the size of the initial loan draw or the amount of cash used from Yancoal's own balance sheet. It says part of the acquisition facility is expected to be drawn after closing to retire debt within Kestrel Coal Group, making the facility's US$1.2 billion ceiling different from the borrowing used to pay the sellers.

The amount paid at completion reflects a US$40 million deposit made when the transaction was signed, along with provisional net debt and working capital adjustments. The company announced the purchase on April 14, but only the Oct. 1 completion starts recognition of its share of Kestrel's operating results.

Yancoal may also owe up to US$550 million in contingent cash. That payment depends on the relevant benchmark coal price exceeding US$225 a tonne, in nominal terms, during any of the first five years after closing; the Oct. 1 release does not set out the payment formula.

"Kestrel delivers increased scale and diversification to Yancoal’s portfolio; it adds a premium metallurgical coal to our product mix," Yancoal chief executive Sharif Burra said in the release.

Kestrel's own site describes it as a metallurgical coal producer northeast of Emerald in central Queensland. Yancoal already produces both thermal and metallurgical coal, so the acquired stake adds to its existing steelmaking coal business.

The completion release gives no updated group production guidance or annual Kestrel tonnage. It establishes the date from which Yancoal will recognize its interest, but does not quantify the volume of coal or earnings that the new stake will contribute.

Yancoal expects to dispatch a circular to shareholders by Nov. 23, with accountants' reports, a competent person's report and a valuation report on Kestrel Coal Group Pty Ltd.