Yancoal (YAL AU) Retraces Post Kestrel Mine Deal

• On the 14th April, Yancoal (YAL AU) announced it had entered into a transaction to acquire a majority stake in the Kestrel coal mine, located in Queensland, for “up to” US$2.4bn.

• Yancoal intends to acquire the 80% stake held by EMR Capital and Adaro Energy (ADRO IJ) JV. Mitsui will maintain its 20% stake.

• 80% of Kestrel was previously held by Rio Tinto Ltd (RIO AU), and sold for A$2.25bn in 2018. That transaction required FIRB approval. This transaction also requires FIRB signing off.

The Trade:

• Kestrel is already majority owned (58%) by foreigners and exports 100% of its output.

• I can’t see FIRB stomping on the deal.

• Perhaps behavioural remedies, where possible, such that Yancoal doesn’t divert the majority of the exports to China (currently just 4% of exports).

• Yancoal is down 8.7% since the deal was announced, giving up last-month’s punchy gains.

• I’d be picking up shares here and on weakness.

This insight is labelled bullish. On balance, Yancoal doesn’t appear expensive versus peers here.