Analysts have weighed in on potential benefits of the deal that even though the bank is advising Yanzhou Coal Mining Company wholly owned subsidiary Yancoal Australia on a possible merger with Gloucester Coal.
The broker has maintained a buy rating and a price target of AUD 10.50 a share, a 49.4% premium to Gloucester current price valuing the company at AUD 2.13 billion.
According to Thomson One Analytics, the consensus call is a buy with a price target of AUD 9.00 a share.
UBS analyst Mr Glyn Lawcock reckons potential synergies exist as follows
1. Legacy contract synergies
“Were Gloucester and Yancoal to merge, then Yancoal may be able to deliver thermal from its Moolarben or Ashton projects into [legacy thermal coal] contracts, freeing up more semi soft coal production from Donaldson.”
2. Blending synergies
“GCL Gloucester basin tends to purchase 100 to 200 kilotons a year of thermal coal to deal with high sulphur content. If this was instead blended with Yancoal coal then a margin of USD 50 per tonne might be kept in house and not paid away.”
3. Operational synergies
Yancoal has operations in the Western Coalfield and the Hunter Valley and Gloucester has assets in the Hunter Valley and Gloucester basin. While assets are not completely co-located, there remains some scope for some joint use of assets and employees.
4. Port synergies
Gloucester has excess port allocation of around 3 million tons a year in New South Wales. By combining both Yancoal and Gloucester, the port allocation requirement would be derisked for Yancoal and might reduce speculation by some in the market that Gloucester long port position is a liability.
5. Reduced Selling, General & Administrative Expense expenditure
“Combining head office, sales and market functions would lead to a reduction in annual costs in our view.”
6. Potential tax synergies
“A transaction may result in an uplift of the value of some of the assets which may mean additional depreciation and amortization tax shields.”
With Gloucester trading halt scheduled to lift Thursday one can only wait to see what revealed.
(Sourced from blogs.wsj.com)
