Yanzhou bids to buy out Australian mining unit

Yanzhou Coal Mining has proposed taking its Australian unit private for about A$180 million (HK$1.26 billion), a deal that would give it more control over a key coal asset but which is expected to face stiff opposition from regulators.

The proposal for Yanzhou to buy the 22 per cent of Yancoal Australia it does not own appears to run counter to previous requirements it be run as an Australian company. It also comes at a time when sensitivity over Chinese firms buying foreign assets is high.

Yanzhou, China's third-biggest coal firm by market value, is talking to the Foreign Investment Review Board and is making the case that the deal is in Australia's national interest as many resource assets are now on the block, a source said.

"The market has fundamentally changed over the course of the last four to six months and if you look around Australia today there's an innumerable number of assets for sale," the source said.

"In that kind of environment you want to be encouraging investment in this sector as much as you can, and if someone's putting up their hand to privatise an asset that they say they are committed to developing and maximising employment, I think that is compelling."

The board approved Yanzhou's A$3.5 billion bid for coal miner Felix Resources in 2009 with strict conditions, including that it operate its mines through an Australian company, list the unit by the end of last year and reduce its ownership to less than 70 per cent by the end of this year.

Given the U-turns that the board would have to make in order to approve the deal, analysts doubt that it will proceed and that scepticism was reflected in its share price.