Macarthur Coal receives indicative bid

Macarthur Coal Indicative BidMacarthur Coal received an indicative proposal from Peabody Energy and Arcelor Mittal in mid-July. The proposal is non-binding, subject to due diligence and a 50.1% acceptance. The proposed price is $15.50 plus up to 16 cents of any 2011 dividend. Directors have allowed due diligence to be undertaken by Peabody and Arcelor.

Peabody is the world’s largest private sector coal company and is listed on the NYSE. Peabody is already a force in Australian coal, owning the Burton and North Goonyella mines in Queensland and Wambo mine in NSW amongst others. Peabody bought Australia’s Excel Coal in 2006. The company’s website indicates that Peabody sells 6 tons of coal per second. Arcelor is one of the worlds’ largest steel producers and is based in Luxemburg. Arcelor already owns approximately 16% of Macarthur.

Macarthur is one of only 28 stocks held in our Quest concentrated portfolio. The proposed bid represents a 40% lift in the value of our stock. Quest is a Top 20 shareholder. Macarthur is the largest producer of seaborne low volatile pulverised coal for injection in the world. Our investment was initiated by our belief in the inherent value of a quality resource.

We consider this bid has a good chance of success given the joint bid structure that includes an existing substantial shareholder. There is potential for an increase in the terms of the bid.