UPDATE 1-Australia clears way for China's Yanzhou Coal to buy out local unit

Tue Dec 10, 2013 8:11pm EST

* Australia says China's Yanzhou not required to cut stake

* Decision comes amid fears bar had been raised on foreign investment

* Support for coal industry key - analyst

By Sonali Paul and Jackie Range

MELBOURNE, Dec 11 (Reuters) - Australia on Wednesday cleared the way for China's Yanzhou Coal Mining Co to take full control of its local unit, offering reassurance that the country remains open to foreign investment.

Treasurer Joe Hockey removed conditions that were imposed on the Chinese state-owned company in 2009 that required Yanzhou to cut its ownership in Yancoal Australia to less than 70 percent and said he would be open to a full takeover.

Hockey's move follows his high profile rejection of a A$2.8 billion ($2.6 billion) takeover of Graincorp by U.S. agribusiness giant Archer Daniels Midland, which spawned fears the recently elected conservative government would take a more protectionist stance on foreign investment.

Chris Drew, an analyst at RBC Capital Markets, said the decision reflected the government's desire to protect a coal industry under pressure from weak prices, with many operations struggling and job losses mounting.

Hockey indicated that Yanzhou's investment in the beleaguered industry was welcome.

"In commitments provided to me, Yanzhou has undertaken to continue to support Yancoal's ongoing operations in Australia, thereby maintaining its position as a major regional employer," Hockey said in a statement.

The change in stance appears to reflect a political environment where a fear of Chinese companies snapping up local resources assets has been replaced by a desire to support an industry in trouble.

"Yanzhou's commitment to keeping the operations going, in the event that they lift the control or maintain their current level of ownership, is perhaps an enticing position from the government's perspective, rather than risk some of the assets getting closed down," said Drew.

"What they are looking for is someone that can ensure that these businesses are going to be kept operational," he said.

Yanzhou's current holding in its Australian unit is 78 percent. It had proposed in July to buy out the minorities to take full control of Yancoal Australia in a deal worth A$200 million.

Shares in Yancoal were placed on a trading halt ahead of an announcement by the company.