Western Canadian Coal to merge with London-based Cambrian Mining

By Brenda Bouw, The Canadian Press

VANCOUVER, B.C. - Western Canadian Coal (TSX: WTN.TO) has struck a merger agreement with its largest shareholder, Cambrian Mining, a marriage the two companies say will help them survive the current economic downturn and build shareholder value.

The deal is valued at about C$52 million and sees Cambrian shareholders receive 0.75 common shares in Western Canadian for every Cambrian share.

Cambrian, the British coal and gold mining company, already owns about 40 per cent of Vancouver-based Western Canadian.

"The merger of Western and Cambrian is a transaction that creates a financially strong company with a diversified base of coal assets," Western Coal president and CEO John Hogg said in a release.

"This will create an enlarged company that can better endure the current economic uncertainty and position itself for future growth and potential for the enlarged company to achieve more together than each company would on its own."

Hogg said the proposed merged company will "create a stronger platform to grow both organically and through further acquisitions."

The combined company would own three coal mines in British Columbia, two coal mines in West Virginia, and a gold and antimony mine in Australia's Victoria state.

Hogg said adding Cambrian's West Virginia high quality hard coking and thermal coal sales into the U.S. markets will help "diversify Western's metallurgical coal international markets."

The companies said some pre-conditions of the deal have been met, but a firm offer has not yet been made.

Western Coal announced a strategic review a year ago, when coal contracts for the April-March period were being negotiated for about US$300 per tonne, triple the price of the year before.

Prices have been falling in recent months alongside global demand for coal, used in steelmaking. Experts predict contracts for the next coal year to come in anywhere from US$100 to US$300 per tonne.

Western Coal's shares closed up a penny at 57 cents on the Toronto Stock Exchange Wednesday.

Cambrian's shares closed up 19 per cent at 22 pence (39 cents Canadian) on the London Stock Exchange Wednesday.

"This is an important step for Cambrian shareholders in our transformation to become a fully-fledged operating entity," said Cambrian CEO Mark Burridge.

"A business combination with Western offers the opportunity to combine two sets of quality assets and personnel, creating a company with the ability not just to survive the current economic climate but also to build shareholder value for the long term."

Cambrian holds 72.3 million Western Coal shares and about C$34 million of the company's convertible debt and loans.

Last month, Western Coal suspended mining and development work at its Willow Creek metallurgical coal mine in northeastern British Columbia, and put capital spending on hold, citing the economic slowdown.

Western Coal reported a profit of $44.7 million or 24 cents per share in the quarter ended Sept. 30, compared with a loss of $43.9 million or 38 cents per share a year ago.

Revenue was $167.5 million, up from $67.9 million.

Coal shipments for the quarter totalled 600,000 tonnes, down 30 per cent from a year ago, while the average realized price was $279 per tonne, up 252 per cent.

In its outlook released with its latest earnings in mid-November, Western Coal said production for the 2009 financial year was under contract for sale at approximately US$300 per tonne for hard coking coal and US$248 per tonne for its ULV-PCI coal.