Whitehaven Coal to merge with Aston Resources

Nathan TinklerWhitehaven Coal and Nathan Tinkler’s Aston Resources intend to merge under a scheme to be voted by Aston shareholders in March 2012. The deal appears to be motivated by a search for scale, diversification and transportation synergies. The combined vehicle will have a capitalisation of greater than $5 billion. Whitehaven will pay a dividend of 50 cents per share if the scheme proceeds and will also buy the exploration assets of Boardwalk Resources subject to the consent of Whitehaven shareholders.

Whitehaven assets in the Gunnedah Basin in NSW are close to Aston’s 75 % owned  Maules Creek resource. There are obvious rail and port synergies as well as increased negotiating leverage in terms of rail development to the coast.

The resource base of the combined entity will lift 25 % to 2 billion tonnes while Reserves will lift 40% to 672 million tonnes. The payment of a franked dividend acts as both an incentive to shareholders and perhaps a deterrent for hedge fund selling over the duration of the deal which is lengthy at about 4 months.

This deal will indeed bring scale but is not necessarily a done deal. The obvious alternative is a third party bidding for Aston which would leave Whitehaven with upside via an agreed option deal and a break fee.

The combined group will be chaired by former Deputy Prime Minister and Leader of the National Party Mark Vaile. Tony Haggarty from Whitehaven will be CEO. Interests associated with Nathan Tinkler will own 19 % of the group with no escrow provision. Whitehaven were targeting 15 m tonnes production in 2015 pre merger; that number may be materially boosted to 25m tonnes by 2016 if the deal goes ahead.

 Whitehaven is a significant holding in the Quest portfolio being more than 3% of our portfolio.