Yancoal bid by Chinese parent looks undercooked

Yancoal Australia (ASX: YAL) was down -11.68% at the open after management in the large-cap coal miner advised the market the company has appointed an independent board committee to consider its options over the potential takeover offer from its Chinese parent company, Yankuang Energy Group.

Yancoal first received an “unsigned, non-binding” approach from Yankuang Energy Group 29 April.

Since then Yankuang has advised the Hong Kong stock exchange of potential plans to take Yancoal private.

Within the recent note, the parent company toyed with the idea of issuing convertible notes at about $5.08 a share to shareholders controlling the 37.7% of shares it does not already own.

To the uninitiated, Yancoal operates five coal mines and operates fives others across NSW, QLD and WA.

Clarification

It’s understood Yancoal’s Independent Board Committee (IBC) is seeking clarification from Yankuang Energy plus additional information in relation to the potential transaction.

The IBC wants to better understand how Yankuang Energy has assessed the value of Yancoal.

Management notes Yankuang’s $5.08 offer is at a significant discount to Yancoal’s last trading price of $6.08.

Hold fire

Given that there is no certainty that the potential transaction will proceed, management suggests Yancoal shareholders take no action in respect at this stage.

Shareholders are also advised to exercise caution when dealing in Yancoal Shares and/or other securities of Yancoal.

March quarter

During the company’s March quarter update, Yancoal noted that due to exceptional rainfall received so far this year, along with covid-linked absenteeism and higher diesel prices, production volumes are being pushed towards the bottom of the guidance range and unit costs towards the top of our guidance range.

If such conditions persist, management flagged a risk of Yancoal not remaining within the current guidance.

A 23% increase in the average realised coal price counteracts the 21% lower sales volume for the quarter.

Other highlights at the quarter include:

• 13.3Mt 100% basis ROM coal production, down 21% from 4Q 2021

• 8.1Mt attributable saleable coal production, down 13% from 4Q 2021

• 7.8Mt attributable mine production sales, down 21% from 4Q 2021

• $258/t average realised coal price, up 23% from 4Q 2021

• 8.1 TRIFR (12mth rolling), compared to 8.4 at the end of 4Q 2021

The Yancoal share price is up 169.85% in the last year, and with coal in even greater demand since the outbreak of war in Ukraine, the share price has jumped from $2.65 at the start of to 2022 to $5.55.

Consensus does not cover this stock.

Based on Morningstar’s fair value of $7.46, the stock appears to be undervalued.

Yancoal Australia's share price has been on a tear over the last 12 months.