Australia's Felix says buyer still keen; shares soar

The Australian Financial Review, citing unnamed sources, said China's Yanzhou Coal Mining Co Ltd (600188.SS: Quote, Profile, Research, Stock Buzz) (1171.HK: Quote, Profile, Research, Stock Buzz) was in talks to buy Felix for more than A$3 billion ($1.9 billion).

Yanzhou Coal, China's No.3 coal producer, later said it has been looking for investment opportunities at home and overseas, but has not yet held formal talks with Felix.

"We have been approached by intermediaries but we are just reaching a preliminary understanding and there have been no formal talks yet," a company official told Reuters on Friday.

Bid interest in Felix remains despite a global credit crisis and tumbling commodity prices that have begun to curb mergers, including global miner BHP Billiton's (BHP.AX: Quote, Profile, Research, Stock Buzz) (BLT.L: Quote, Profile, Research, Stock Buzz) $66 billion offer for rival Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz) (RIO.L: Quote, Profile, Research, Stock Buzz).

Felix confirmed that a party, which it declined to name, was still conducting due diligence on its business. Felix first revealed it was opening its books for a potential bidder in July.

Felix shares soared by as much as 93 percent to A$10.48 before settling around A$7.31, up 34 percent.

A commodities analyst said a takeover bid was still far from assured.

"If you've only got one interested party then you don't have a lot of say in trying to get some competitive tension to try and sell the assets," said Ben Kakoschke of brokerage Tolhurst.

"All the power's in the buyer's court and you'd really need to see something binding before you get too excited."

Felix, which also said in October it was talking to parties about being taken over, was "putting all the signs out there that they want to try and sell", Kakoschke said.

The Australian Financial Review said Yanzhou Coal executives had visited Felix's Ashton open-cut coal mine in New South Wales state on Thursday as part of due diligence.

Felix shares have tumbled 75 percent from peaks of around A$22 hit in early June as coal prices retreated amid the global financial crisis, though the paper said major shareholders' price expectations were still based on "fundamental values", which analysts have pegged at well over A$15 a share.

At A$15 a share, Felix would be valued at A$2.94 billion.

But analysts say spot coking coal prices have dropped as much as 50 percent in a month, suggesting much lower prices at the next round of contract negotiations in 2009 when around 90 percent of coal is priced.

"Things have dropped away very heavily in expectations for coal going forward. It would certainly give any buyer a lot of leverage to secure a lower price for the (Felix) assets," said Kakoschke. "It's the sort of market where, if there's a bid around, you'd certainly entertain it."

Felix's Moolarben coal project is the key future earnings driver, with UBS estimating earlier this year its net profit would more than double to A$1.12 billion by fiscal 2011.

The project holds an estimated 406 million tonnes accessible from an open cut mine and a further 299 million tonnes underground.

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-------------------------------------------- (Additional reporting by Ruth Wong in HONG KONG, Editing by Mark Bendeich & Ian Geoghegan)