UPDATE 2-China's Yanzhou Coal to buy Felix for $2.9bln

* Yanzhou agrees to buy Felix for $2.9 bln

* Deal comes amid strained China-Australia investment ties

* Deal subject to Australia, China government approvals

* The deal would be China's largest purchase in Australia

* Felix shares nearly double this year, outperform market (Adds details)

By Denny Thomas

SYDNEY, Aug 13 (Reuters) - China's Yanzhou Coal Mining Co (1171.HK) agreed to buy Australian coal miner Felix Resources Ltd (FLX.AX) for $2.9 billion, both firms said on Thursday, further underscoring China's growing appetite for resources assets.

The deal comes amid strained investment ties between the two nations, with China formally arresting four staff from Anglo-Australian miner Rio Tinto (RIO.AX) this week on accusations they stole state secrets. [ID:nSP473911]

China's relentless pursuit of Australian resource companies is also despite the Australian government rejecting China's state-owned Minmetals bid for distressed miner OZ Minerals Ltd (OZL.AX) this year, forcing Minmetals to submit a revised bid.

Yanzhou's proposed takeover of Felix is subject to regulatory approvals in Australia, including from the Foreign Investment Review Board which vets all foreign sovereign investments.

"We recognise that the offer is subject to a range of regulatory and shareholder approvals in Australia and China and fully respect those processes," Yanzhou said in a statement.

"We will work constructively with authorities in both countries at all times, recognising the importance of this transaction and its potential to deliver significant employment and economic benefits," it added.

In June, Anglo-Australian Rio Tinto (RIO.AX) walked away from an agreed $19.5 billion tie-up with China's state-owned Chinalco, a decision that some Chinese critics blamed on Australian hostility to Chinese capital. [ID:nRIO]

Yanzhou's proposed takeover of Felix would be China's largest purchase in Australia.

China's No. 4 coal producer by market value is offering A$18.00 per share cash, including special dividends, a 6.5 percent premium to Felix's last traded price.

Some analysts had expected Yanzhou's bid to exceed A$20.00 per share as Felix is cash rich, unlike some of the distressed mining companies in Australia.