Xstrata set to buy First Coal

Kasmira Jefford
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MINER Xstrata has made an all-cash bid for First Coal Corporation, a privately held Canadian miner, that values the firm at $153m (£93.7m).

Xstrata, the fourth largest global diversified miner, said in a statement yesterday that the board of First Coal had unanimously recommended the deal, which will give it access to coking coal exploration leases in Canada’s British Columbia region.

Coal accounted for 29 per cent of Xstrata’s earnings in 2010. It is the world’s largest exporter of thermal coal and a large producer of high-quality coking coal and semi-soft coal.

The group has mines in Australia, South Africa and Colombia and an exploration project in Nova Scotia, Canada.

Shareholders representing more than 50 per cent of First Coal’s equity have agreed to sell their shares to Xstrata under lock-up agreements.

“The proposed purchase of First Coal provides Xstrata Coal with access to coking coal exploration leases in British Columbia, Canada,” said London-listed Xstrata, explaining its motivation for the deal.

Analysts predict Xstrata will report earnings before interest, taxes, depreciation, and amortisation of $5,845m, a 30 per cent rise on last year, when it publishes its half year results next week.

“Xstrata has under-performed the peer group and market over the last three months, partly we believe as talk of a takeover by Glencore has eased, coupled with cost pressures and production disruptions within the coal division,” said analysts at BNP Paribas.

Yesterday shares in Xstrata closed down 1.31 per cent at 1320.50p.