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Chinese company set to launch coal takeover b -

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Chinese company set to launch coal takeover bid

Sue Lannin reported this story on Tuesday, August 11, 2009 12:48:00

ELEANOR HALL: Another Chinese company is expected to launch a takeover bid in Australia. China's
fourth biggest coal producer is set to bid for Queensland coal miner, Felix Resources.

The potential deal is the biggest involving an Australian firm and a Chinese state-owned company
since Chinalco's failed bid to double its stake in Rio Tinto.

And some analysts are advising that the Federal Government should think carefully before it allows
a Beijing-backed company to control an Australian miner.

Finance reporter, Sue Lannin.

SUE LANNIN: Felix Resources owns coal mines in Queensland and New South Wales. For more than a year
it's been in talks with Yanzhou Coal, China's fourth biggest coal producer.

Now a $3.5 billion takeover bid is expected to be made.

Gavin Wendt is the head of research at stockbroker, Fat Prophets.

GAVIN WENDT: From a Felix Resources shareholder perspective it looks like a good deal. The bid is
at around about $20 a share, which is at a significant premium to the last sale price of Felix
Resources.

SUE LANNIN: Felix Resources went into a trading halt yesterday pending an announcement about what
it called a potential change of control transaction. Gavin Wendt says it shows that Chinese
companies are still hungry for Australian resources.

GAVIN WENDT: It's interesting that whilst the Chinese, on one hand obviously have objections with
respect to how one company has allegedly done business with them, that hasn't stopped their broader
scope of looking to secure commodities right across the board.

SUE LANNIN: The timing is difficult. Relations between China and Australia are strained over the
detention of Rio Tinto iron ore negotiator, Stern Hu. Commodities analyst Jonathan Barratt opposes
any deal involving a takeover of Felix by Yanzhou.

JONATHAN BARRATT: I think it is more a problem because it's more of a complete takeover. I think
that to me is where the issue lies. I mean, I'm quite happy to see companies invest in Australian
primary imports.

But I think when you've got more of a state-owned company behind the control of that asset that's
where I get concerned because that then creates issues in terms of pricing, pricing for that
commodity. Because it's basically saying that - do we fly outside what the market suggests? Can we
conjure up a better price?

So all these other things in terms of pricing, I think, come to the fray. And I think this deal
will actually put to a head, actually, what a lot of people are thinking, in terms of control of
pricing.

SUE LANNIN: Yanzhou is controlled by the Shandong provincial government and listed in Hong Kong and
the United States. It already owns a coal mine in the Hunter Valley which it bought in 2005. But
Jonathan Barrett thinks its ownership won't make any difference.

JONATHAN BARRATT: All roads lead to Rome, so at the end of the day it's still just as important
because the control in a socialist market economy does come back to Beijing, so ... and that's what
we'll see.

SUE LANNIN: He supported Chinalco's plan to take a nearly $30 billion stake in Rio Tinto. Rio
abandoned the deal earlier in the year amid opposition from shareholders, politicians and the
public.

Jonathan Barratt says Treasurer Wayne Swan should tread carefully.

JONATHAN BARRATT: I think FIRB are really going to have to do some soul searching as to whether the
Australian community want to see investment - not just investment but a takeover of our resources
and see profits actually fly back to a state-owned company.

And I think that, to me, is a concern which they've really got to test.

I certainly see there is a concern at the moment we've had with Rio and Chinalco. So there might be
a little of placating to actually be done by Mr Swan.

But at the moment I think it is a concern that they have to make a decision and it will bring to
the head, how we actually feel about foreign companies taking over our assets.

ELEANOR HALL: That's commodities analyst Jonathan Barratt ending that report by Sue Lannin.