UPDATE 2-Drummond got at least 4 bids for Colombia ops-sources

Mon Oct 4, 2010 5:51pm EDT

Related Topics

* Vale, Xstrata, Glencore and Vallar all bid-sources

* Not clear if bids in $6 bln-$8 bln target range-sources (Adds details about Glencore and Xstrata)

By Michael Erman and Jackie Cowhig

NEW YORK/LONDON, Oct 4 (Reuters) - Brazilian mining giant Vale SA (VALE5.SA) and three other companies are among the bidders for the Colombian operations of U.S. coal miner Drummond Co [DRMND.UL], according to several sources familiar with the matter.

Drummond received at least four bids for the assets, including offers from diversified global miners Vale, Glencore International [GLEN.UL], and Xstrata XTA.L, as well as mining investment vehicle Vallar Plc VAAR.L, the sources said. Bids for the operations, which are set to export 24 million tonnes of coal in 2010, were due in mid-September.

But it was unclear if any of the bids was in the $6 billion to $8 billion range that Drummond has targeted, according to several sources familiar with the matter.

There is some skepticism as to whether any of the bidders can reach a deal with privately held Drummond, which has run an auction process on the assets at least twice previously, according to the sources. On both those occasions, Drummond decided not to sell its Colombian operations.

Drummond is the second-largest coal exporter in Colombia, which ranks fifth among coal exporting countries globally. Its assets there include the Pribbenow open pit coal mine, the El Descanso mine, the Dupela project, a deepwater ocean port on the Caribbean Sea, and coal transportation and handling facilities. It has been in Colombia since the late 1980s.

Outside of Colombia, Drummond is a merchant coke producer in the United States and owns the Shoal Creek mine in Alabama.

Drummond said in July it had hired Bank of America Merrill Lynch to advise on whether it should take on a partner in Colombia, but sources told Reuters then that it was also considering an outright sale of the assets. [ID:nN21156831]

Miners and traders are keen to snap up large-scale, cash-generating mines with developed infrastructure ahead of the next commodity price boom, which they anticipate in three to five year's time when supply bottlenecks and coal demand are expected to bite.

Colombia in 2010 began shipping extensively to Asia as well as its traditional coal markets in Europe and the United States. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on Drummond's production, click here For a FACTBOX on Drummond's Colombian operations, click [ID:nN16264711] For more on Colombia's coal, click [ID:nN17159080] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Chief Executive Garry Drummond, 72, holds a majority stake in the family-owned company and will likely make the final decision as to whether the company will part with the assets, the sources said.

One reason some industry sources believe Drummond will get a deal done is due to upcoming changes in U.S. tax law. It could be lucrative for the family to complete a deal before year-end when Bush-era tax cuts are set to expire.

Glencore and Xstrata both currently have operations in Colombia and could possibly end up bidding for the assets together, the sources said.

Glencore, which owns nearly 35 percent of Xstrata, has for many years had its eye on Drummond's Colombian operations, which are near its own Prodeco La Jagua and Calenturitas mines, sources familiar with the company told Reuters in September.

Adding Drummond to its 21 million tonnes a year thermal coal and pulverized coal (PCI) Prodeco operations would give Glencore a dominant role in the Colombian coal industry and cash-generating mines with an strong customer base and a growing market in Latin American countries such as Brazil and Chile.

Xstrata is in Colombian coal joint venture Cerrejon with Anglo American (AAL.L) and BHP Billiton (BLT.L).

Drummond, Glencore, Xstrata, Vale and Vallar all declined comment. (Additional reporting by Jack Kimball in Bogota; Editing by Leslie Gevirtz, Steve Orlofsky and Carol Bishopric)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.