CEY 0.00% $6.16 centennial coal company limited

Centennial Coal

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    Centennial snaps up Powercoal for $306m
    By Jane Counsel and Robert Wainwright
    July 30 2002

    Stacking up...the acquisition will make Centennial the largest independent supplier of coal for power generation in NSW.

    Centennial Coal has emerged as the surprise buyer of the NSW Government's Powercoal coalmines, securing the entire package for just $306 million.

    The acquisition will see Centennial become the largest independent supplier of coal for power generation in NSW, with the proceeds of the deal enabling the Government to extinguish $125 million in debt.

    The transaction also includes a clause to protect jobs for Powercoal's 1100 employees for at least the next three years, placating union concerns that privatisation would lead to widespread job losses in the Coast, Hunter and Western District coalmining regions.

    Announcing the acquisition yesterday, Centennial's managing director, Bob Cameron, said he was confident the company could maintain all jobs beyond three years by improving operational performances in other areas of the company. The company also has bank guarantees covering all of the workers' accumulated entitlements.

    Centennial is helped by the lucrative take or pay contracts Powercoal's seven mines have with two of the state's three electricity utilities, priced at a premium to steaming coal spot market prices.

    "Our track record demonstrates that we have expanded production and raised productivity levels at our mines," Mr Cameron said. "We look forward to creating similar opportunities for increased production and employment through our acquisition of Powercoal."

    Centennial was originally expected to be a bidder for only a few of the Powercoal mines.

    But Mr Cameron said that due diligence conducted on the assets identified "inherent" value that would enable synergies with its existing Western District coalmines.

    The acquisition will boost Centennial's annual production from 5.1 million tonnes to more than 13 million tonnes, with contracted production expected to generate revenue of more than $5 billion. Existing production contracts with power stations are secured for between six and 20 years.

    Centennial's $306 million purchase price, plus $25 million in stamp duty, was under the indicative $350 million to $600 million range.

    But Centennial's commitment to spend more than $220 million developing the Mandalong and Great Northern coal projects, along with a desire to buy the Powercoal assets as one package, has worked in its favour. The only other interested buyer in the entire package was London-based Xstrata. But it is not known whether that company could give the same guarantees on job security and mine development.

    Centennial intends to fund the acquisition through a $100 million capital raising and a debt raising secured through a syndicate of four banks.

    News of the Powercoal acquisition overshadowed Centennial's record year to June profit of $29 million, a trebling of the previous year's $9.7 million.

    Centennial shares were suspended yesterday but were last quoted at $1.75.

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