China Yanzhou Coal Mining Co has agreed to buy Australian coal miner Felix Resources Ltd for US$2.9 billion.

Yanzhou's proposed takeover of Felix is subject to regulatory approvals in Australia, including from the Foreign Investment Review Board which vets all foreign sovereign investments.

China's No. 4 coal producer by market value is offering A$18 (US$15.16) per share cash, including special dividends, a 6.5 percent premium to Felix's last traded price.

Yesterday's announcement comes soon after Anglo-Australian Rio Tinto walked away from an agreed US$19.5 billion tie-up with China's Chinalco.

Analysts expect the deal to boost Yanzhou's output by about 10 percent.

Trading in Yanzhou and Felix shares were halted this week as the two firms finalized the deal. Talks initially started last year, but there were differences over valuation.

UBS advised Yanzhou, while Felix was advised by Citigroup and Wilson HTM.

Investment bankers say Yanzhou's acquisition of Felix is expected to win approval from Australia's FIRB as the assets of the mid-sized company are not strategic.

If completed, Yanzhou's purchase of Felix would be China's largest purchase in Australia ever, and its third-largest cross-border deal this year, according to Thomson Reuters data.

So far this year, Chinese firms have invested about US$2.2 billion in Australian energy and resources companies.

Chinese imports of coal more than doubled to about 48 million tons in the first half of this year, to meet growing demand for steel and power production.

Felix produced 4.8 million tons of coal in the year to June.

(Shanghai Daily August 14, 2009)