Straits Resources is getting into bed with Thailand’s biggest energy company, PTT International in a global joint venture that will target the coal industry (so much for emissions fears and global warming concerns).
PTT yesterday revealed plans to buy 60% of Straits’ controlling stake in the listed Straits Asia Resources Ltd for as much as $US335 million.
PTT International Co. will pay Straits Resources $US220 million for the stake and a further amount of up to $US115 million as a performance fee, dependent on “reserve upgrades” at a mine in Indonesia.
Because the deal involves a change of control in Straits Asia, the Bangkok-based PTT has also made a takeover offer for the Singapore-based company.
Straits Asia supplies coal to Japan, Taiwan and South Korea from mines in Indonesia. Perth-based Straits Resources owns a 47% stake in Straits Asia and said last December it received approaches from potential buyers for its stake.
In documents filed with the ASX, Straits Resources explained the deal:
"Consistent with its strategy, SRL is to form a strategic alliance with the PTT Group of companies (PTT) to establish a global coal vehicle: PTT is acquiring a 60% stake in SRL’s wholly owned subsidiary, Straits Bulk & Industrial (SBI) which holds:
"47.1% interest in SGX listed Straits Asia Resources (SAR); the Sakoa coal exploration interests in Madagascar; Brunei coal exploration interests and the Yannarie solar salt project
"A coal team headed by Martin Purvis, that has been responsible for SRL’s success and growth in coal, will transfer to SBI
"Co-investment Shareholders Agreement will align and govern the interests of the joint venture vehicle
"Total consideration of US$335m (US$220m upfront / US$115m performance payment) and settlement is scheduled for April, 2009.
Straits said that for it and its shareholders, the deal:
"Delivers on SRL’s vision to establish a global coal platform; Partnering with a significant and financially capable Asian energy company; Realises significant and immediate value for shareholders; Opportunity for a return of capital to shareholders.
"SRL retains a substantial economic interest in and management influence over world class coal assets Enhances the financial capability of SAR’s major shareholder Strengthens SRL’s financial position to pursue opportunities at a low point in the cycle Reweights and diversifies SRL’s portfolio risk across commodities and regions Catalyst for potential share price re-rating as a result of unlocking the value disconnect and repositioning for growth."
PTT said in the statement that “Coal represents an important long term diversification strategy and growth opportunity.
“PTT will also benefit from the coal expertise of the management team who has been responsible for Straits Resources’ success and growth in coal.”
Trading in Straits Resources shares was halted in Sydney at $1.15 yesterday.
The company said last October that it was reviewing all its operations and curbing expansions and exploration in a bid to reduce spending as a slump in metals prices erodes margins. Straits Asia owns mining leases for the Jembayan and Sebuku coalfields in Indonesia.
Brokers said Straits Resources management was non-committal about what the company would now look for. Copper was mentioned.
Besides Straits Asia’s offshoot, the parent company owns the Whim creek copper mine in the Pilbara in Western Australia, the Tritton gold project at Nyngan in New South Wales and the Hillgrove gold operation in Armidale NSW.
