Ground Breakers: Minority shareholders let loose on 'ridiculously low' Yancoal offer

Minority shareholders at Yancoal let fly on “ridiculously low” takeover bid from Chinese parent company
Yancoal has set up an Independent Board Committee to assess the offer from Yankuang Energy, which is priced at a 16.6% discount to its Wednesday trading price
Gold Road ups bid for DGO

Minority shareholders of Australia’s third most prolific coal miner have used Yancoal’s (ASX:YAL) 2022 AGM this morning to let fly about a proposal that could see its Chinese parent take out the $8 billion coal miner at a shocking 16.6% discount to its last traded price.

Yancoal shares were paying $6.08 on Wednesday before entering a trading halt as controlling shareholder Hong Kong-listed Yankuang Energy Group announced plans for a lowball US$3.60 ($5.07) a share bid for the ~38% of the miner it didn’t already own.

It sent Yancoal shares tumbling almost 15% on the open before pulling back to a ~7% drop as of 12.15pm AEST.

Yancoal is the largest pure play coal miner on the ASX, but has lower liquidity than competitors Whitehaven (ASX:WHC) and New Hope Corp (ASX:NHC) thanks to its ownership structure.

The company, which notably expanded through the multi-billion dollar purchase of Rio Tinto’s east coast coal business in 2017, is majority owned by Yankuang with other major shareholders including Cinda International (15.89%), Glencore (6.4%) and China Shandong Investment Limited (5.41%).

That means just over 10% is held by small shareholders, who run the risk of being muscled out through compulsory acquisition rules if Yankuang’s bid gets the support of others.

The timing of such a low priced bid, especially one which will draw foreign investment review board scrutiny, could not be more disappointing for those small holders.

Coal prices are at record highs with Newcastle index thermal coal fetching US$370/t on the spot market and coking coal trading at over US$500/t.

That helped Yancoal swing from a $1.04 billion loss to a $791m profit in 2021, a mark it has bested only once in the past five years back in 2018.

Yancoal today said it had appointed an independent board committee of directors not currently or previously linked with Yankuang to assess the bid, which actually came in the form of an “an unsigned, non-binding expression of interest” on April 29, almost a month before Yankuang revealed the approach on the Hong Kong Exchange.

Shareholders criticise offer price

Given the state of the coal market, which has seen prices drive to new highs on the back of Russia’s invasion of Ukraine and a northern hemisphere energy shortage, shareholders in Yancoal may have expected any buyout to come at a tasty premium, not a 16.6% discount.

Yancoal CEO David Moult took a particularly bullish stance on the outlook for coal prices across 2022 in his AGM address.

“In our First Quarter Production Report, we reported the average realised prices of A$243 per tonne for thermal coal and A$349 for metallurgical coal,” he said.

“The coal industry has limited capacity to increase output in response to the current market conditions. Restrictions on mining permits and approvals, as well as on funding sources, means there is almost no latent capacity on stand-by.

“The prospect of coal prices remaining elevated throughout 2022 is increasing.”

In that context, the offer has frustrated patient minor shareholders, who were expecting fat dividend cheques to become a feature of their investment after a number of lean years.

“The offer would seem ridiculously low,” said one, in a question about the Yancoal’s board’s stance on the bid.

“Surely the independent board committee considers this offer grossly undervalued and will reject it,” asked another who estimated at expected prices Yancoal’s cash generation could exceed the offer price by the end of 2023.

Non-executive director Gregory Fletcher, who will be joined on the committee by Geoff Raby and Helen Gillies, said the committee was “very conscious” that it is representing “all shareholders”.

“The Yancoal independent board committee has been established, it’s been corresponding with Yankuang Energy seeking clarifications and additional information, including a better understanding of how Yankuang Energy has assessed the value of Yancoal,” he said.

“Noting that the proposal price is at a discount to the prevailing trading prices of Yancoal shares on the ASX and the Hong Kong Stock Exchange, the Yancoal independent board committee will continue to evaluate the transaction and will update Yancoal shareholders in due course.”

Yancoal (ASX:YAL) share price today:

Gold Road ups DGO offer

From a lowball offer to another getting higher, Gold Road Resources (ASX:GOR) has ramped up its bid to take control of junior explorer DGO Gold (ASX:DGO).

The real prize is a 14.4% stake in De Grey Mining (ASX:DEG) and its monster Hemi discovery held by Ed Eshuys’ DGO, one of the most exciting gold finds of the modern era.

The Gruyere gold mine owner announced an improved and final bid of 2.25 Gold Road shares for every DGO share, up from a previous 2.16 for 1 offer.

Gold Road says the deal values DGO at $2.95, 7.6% up on its 10-day VWAP of $2.74.

Whether the increase will get more DGO shareholders across the line remains to be seen. Gold Road has received acceptances for 21.5% of DGO’s shares, with the DGO board (15.8% collective holding) supporting the proposal.

DGO also has significant positions in Yandal Resources (ASX:YRL) and Dacian Gold (ASX:DCN).