Takeover target
Prairie Mining and the Lublin project represent a significant coal asset in the Lublin Basin and for some groups is an attractive option as a potential takeover target given potential synergies available and also as a footprint in the basin.
The obvious player is neighbouring LW Bogdanka (WSE:LWB) which listed in 2009 and has a capitalisation of approximately US$1.25bn. LW Bogdanka plans to increase the extraction of commercial coal in 2014 by at least 1mtpa compared to 2013, to 9.3-10mtpa. In 2013, the level of commercial coal production reached 8.35mtpa which was slightly lower than expected due to difficult geological conditions. Bogdanka said in June 2013 that it intends to increase production to 12mtpa by 2015. Bogdanka also indicated it would like and a two-foldincrease in the Company’s operating resources (currently ~255mt) in the Lublin Coal Basin, and thus extension of the mine’s operating life to around 2050.
Given the expansion plans of Bogdanka a possible solution would be to acquire Prairie Mining. It may be possible to access Lublin from Bogdanka’s operations and so make significant capex savings on one shaft and associated infrastructure power and rail. This is estimated to be in the region of $200m. Bogdanka has been operating for over 30 years and Prairie Mining see improvements mostly in terms of efficiency, labour and coal processing. With a significant work force and only thermal coal sold into the local market the model for Prairie Mining should have significant improvements and so an increased margin.
Other possible interest could come from JSW. The JSW Group is the largest producer of high- quality hard coking coal and a major producer of coke in the European Union. Jastrzębska Spółka Węglowa S.A. was established on 1 April 1993, it consisted of 7 independently operating mining enterprises transformed into a wholly owned company of the State Treasury.
JSW is composed of 4 mines producing coking coal and steam coal in Upper and Lower Silesia.: In 2013, JSW S.A.’s mines produced 9.8mt of coking coal (including 7.8mt of hard coking coal) and 3.8mt of steam coal. JSW S.A.’s mines have a total of approx. 2.2 billion tons of coal resources (JORC), including approx. 0.6 billion tons of recoverable reserves. The Group intends to enlarge its recoverable resource base to maintain a strong position in international markets over the next 60 years. The Company is also well capitalised, with strong cash flows and profitable mining operations.
JSW’s products are purchased by customers from Poland, Germany, Austria, the Czech Republic, Slovakia, India and Brazil. Major external customers for the Group’s products include
ArcelorMittal Poland, voestalpine Stahl, Moravia Steel, ThyssenKrupp, U.S. Steel and Koksownia Częstochowa Nowa
