PERTH/MUMBAI, Aug 3 (Reuters) - Australia's Linc Energy (LNC.AX: Quote) has agreed to sell its Galilee coal tenement to India's Adani Enterprises (ADEL.BO: Quote) in a cash and royalty deal worth $2.7 billion, marking the largest single mine investment by an Indian firm into Australia.
The deal with Adani could herald more Indian investments amid forecasts of an acute coal shortage in the developing nation, expected to see its electricity output double within a decade.
With the deal, Linc, whose primary business is underground coal gasification, will receive A$500 million in cash and A$2 per tonne in royalty for the first 20 years of coal production from the mine, Linc's Chief Executive Officer Peter Bond told Reuters.
"It's a fantastic deal for us. We also have the flexibility to sell the royalty agreement to monetise it into cash now, or hold it and receive the full benefit of 20 years of cash flow," Bond said in a telephone interview from Brisbane.
Analysts said the deal was a win for both companies, with Adani securing quality coal resources at a good price and Linc securing a long-term income stream.
The Galilee tenement, located in the northeastern state of Queensland, holds about 7.8 billion tonnes of certified indicated resources and Linc said it can produce up to 60 million tonnes per year once the mine was fully operational.
"The deal is reasonable as the acquisition costs for this 8 billion tonnes mine comes out to be $4-$5 per tonne," said Giriraj Daga, analyst at Indian brokerage Khandwala Securities.
Linc's shares, which have been suspended pending the sale announcement, last traded down 1.6 percent at A$1.86. Shares in Adani, founded by Gautam Adani, a university drop-out, who began his career sorting diamonds, were up 2.1 percent by 0811 GMT.
Adani Chief Financial Officer Devang Desai told a press conference in the western Indian city of Ahemdabad that it would take four years to start operations in the Australian coal mine. [ID:nBMA008168]
For recent M&As in Australia coal sector: [ID:nSGE66C099]
For related DEALTALK: [ID:nSGE66D01P] For a graphic on India's coal imports, see: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Bond said Adani has already obtained approval from both the Australia's Foreign Investment Review Board (FIRB) for the Galilee acquisition, and indicative approval for the transfer of the coal tenement from the Queensland State Government.
Although India has significant coal reserves suitable for power generation and is one of the world's top coal producers, infrastructure constraints and rapid economic expansion has caused demand to fast outstrip domestic supply.
India may face a coal shortfall of 189 million tonnes a year by 2015, leading to a twofold increase in imports, global consultancy KPMG said late last month.
In a bid to secure energy supplies, Indian power firms, including Tata Power Co and Reliance Power Ltd, have bought coal mines in Indonesia and South Africa in recent years, while state-run NTPC Ltd (NTPC.BO: Quote) has said it is looking to buy mines in Indonesia and Australia.
MORE ASSET SALES
Linc said it will now move quickly to complete the sale of its Theresa coking coal asset, for which the firm has already received strong interest.
Bond told Reuters on Monday that it was in well-advanced talks on the sale of its Theresa assets and a deal could come weeks later. [ID:nSGE67100R]
Linc has been trying to sell its Theresa coal tenements in Queensland for more than two years, after a deal with China's Xinwen Mining Group for A$1.5 billion in 2008 and subsequent talks with Yanzhou Coal (1171.HK: Quote) fell through.
It later expanded its sale process to include its Galilee and Pentland coal tenements, which Linc has said have excellent coal mining potential. (US$1=A$1.0992) (Reporting by Fayen Wong and Ketan Bondre; Editing by Valerie Lee)
LNC Price at posting:
$1.86 Sentiment: LT Buy Disclosure: Held
