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U&D Coal IPO floats 20 per cent of company

Sally Rose
Updated

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Speculative junior explorer U&D Coal will launch its initial public offer on Monday with hopes of raising $125 million to fund the development of its first operating coal mine by 2015.

U&D’s Chinese owners will float about 20 per cent of the business on the ASX through an IPO of up to 250 million shares at 50¢ each, to raise a maximum of $125 million, with a minimum subscription of $50 million.

An on-market book-build will commence on December 16 and close on December 20. Ordinary trading is due to commence on February 19, 2014.

U&D Coal will be the first IPO to use an ASX on-market book-build facility, as approved in October.  Photo: Andrew Quilty

It will be the first IPO to use a ASX on-market book-build facility, which was approved as a new process for capital raisings and listings in October.

“We hope the [new] process will engage a wider audience and help meet the challenge of securing the minimum 400 Australian investors required under the foreign investment rules," U&D Coal company secretary Peter Edwards said. The lead manager is AFS Capital Securities, a boutique ­broker established in 2010 with a focus on helping Chinese companies transact in Australia.

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Cash needed for Meteor Downs South thermal coal project

The IPO will need to raise at least $100 million, double the minimum $50 million subscription, to provide enough cash to fund the development of the Meteor Downs South thermal coal project in Queensland’s Bowen Basin at an estimated cost of $46 million. U&D Coal forecasts the first coal shipment to be ready in 2015.

“Meteor Downs South will be a low-cost producer," Mr Edwards said.

He estimated the cost of production, ex-freight, at $37 a tonne, compared to what he estimated as the industry average of about $50 a tonne.

But the real price competitiveness of the project will depend on the cost of getting the coal to Gladstone Port via Aurizon’s industrial rail freight services.

Mr Edwards is optimistic of being able to negotiate a good deal with another miner operating in the Bowen Basin to either buy some of their “take and pay" contracts with the freight and port suppliers or form a joint venture.

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China Construction Bank has approved a $70 million debt facility, which, if the IPO is successful, means the company will be able to fund its operations for two years.

Some funds earmarked for feasibility study

The company has 19 ­ten­ements in Queensland, plus 10 outstanding ­tenement applications. There are minimum annual capital expenditure ­obligations to retain tenements.

Some of the money being raised in the IPO is earmarked to finance a ­feasibility study, due to begin in early 2014, at the Broughton project in the Galilee Basin.

The plan is to start shipments from Broughton in 2016, but that is subject to the results of the feasibility study and further investment.

Broughton is predominantly a ­coking coal asset and is likely to be more expensive to develop than Meteor Downs South.

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Early-phase development is also under way at another four sites, including the company’s largest tenement Rockwood, an anthracite coal site.

Other than Broughton, the majority of the tenements were purchased in the May acquisition of Endocoal , a ­junior ASX-listed explorer that ran out of money to keep financing its ­development costs.

Commitment from Chinese cornerstone investors

Mr Edwards argued that the commitment of U&D Coal’s three Chinese cornerstone investors means it “has more momentum" to succeed in getting projects to the production phase.

U&D Coal has aspirations to have three to five producing mines within five years of listing, with a targeted ­production of 8 million tonnes of coal a year.

U&D Coal’s majority, 51 per cent, shareholder, is Australia Kunqian International Energy Co, a local holding company that is wholly owned by Yimacoal – part of Henan Energy and Chemical Group, a state enterprise, which is the third-largest coal business in China.

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An ASX-listed, majority Chinese-owned company, Australia New ­Agribusiness and Chemical Group , previously held 49 per cent of U&D Coal, but recently sold its stake to two Chinese-owned businesses operating through British Virgin Island-based investment companies.

China Kunlun owns 25 per cent and Golden Globe owns 24 per cent.

AFS Capital Securities lead broker Binghing “Bing" Hu described a decision this month from federal Treasurer Joe Hockey to grant ASX-listed majority Chinese owned Yancoal more time to meet its obligations to the Foreign Investment Review Board as ­“encouraging" for the success of U&D Coal’s ­listing.

But Paterson Securites resource ­analyst Matthew Trivett said: “The coal market is only just showing signs of recovery. Among the general Australian investor community, coal is not a priority people are looking to add to their portfolios.

“If the next quarterly update of the coking coal contract price, due for release in late December, is significantly higher or lower than the current price, that could have an important impact on how the U&D Coal float ­performs," Mr Trivett said.

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