As talk of consolidation in the coal sector intensifies, some fund managers are touting small-cap Queensland coal explorer Metrocoal as a potential takeover target.
Metrocoal, which has a market capitalisation of just $61 million, is selling off part of it Surat Basin tenement in Queensland, which adjoins Xstrata's massive Wandoan project.
Sources close to the deal said Chinese, Indian, Korean and local buyers, all described as "big name producers", had run the ruler over the Surat Basin assets.
It is understood that Metrocoal hasn't decided on the percentage that it is willing to sell to a joint-venture partner, but the talk is the company is considering hiving off a majority stake in the project.
Sources close to the deal were confident of getting a result by November, despite the failed asset sale processes run by coal developers Bandanna Energy and Whitehaven Coal.
Some market watchers blame Bandanna's failed sale process on the Queensland government's decision to apply development restrictions on Bandanna Energy's proposed mines in prime agricultural areas.
Part of Metrocoal's appeal is its 20 per cent stake in the proposed Tenement to Terminal Limited (3TL) project, which is being developed in partnership with Mitchell Group chief executive Nathan Mitchell.
The Mitchell family wealth was estimated to be $235 million in the 2010 BRWRich List.
Metrocoal has also recently started work on an upgraded mine model, which is understood to be part of the reason why the company extended the sale process.
In July the company was forced to clarify reports in the Indian press that said the company's coal reserves were 1.2 billion tonnes.
Metrocoal corrected the report saying it had an inferred resource of 767 million tonnes at the Surat Basin project.
However, the media report and the company's 2.5 billion to 3.5 billion tonnes exploration target created some chatter among investors about the potential upside in the company's resources.
Potential bidders for the stake in Metrocoal's Surat Basin asset are scheduled to visit the company's operations early this month.
Metrocoal signed a joint-venture agreement with a subsidiary of China National Coal Group to explore the Surat Basin in April.
Metrocoal listed in December 2009 at 25¢. The share price moved little in its first year on the exchange, but the stock has doubled this year to close at 59¢ on Friday. Shares were fetching as much as 96¢ in July.
Source: AFR Sat 1st Oct 2011
MTE Price at posting:
59.5¢ Sentiment: LT Buy Disclosure: Held
