The Deal

Yancoal Australia (3668 HK/HK$39.28; YAL AU/A$7.17, NR), a 62.3%-owned subsidiary of Yankuang Energy (1171 HK/HK$14.70, HOLD; 600188 CH/RMB19.19, NR), has agreed to acquire an 80% interest of Kestrel Coal Mine for an upfront consideration of US$1.85bn plus contingent consideration of up to US$550m in five years. For the contingent consideration, the vendors (EMR Capital Management and Adaro Capital Limited) can share 30% of the part of revenue of the target asset generated at coal price above the level equivalent to annual average US$225/tonne for Platts Premium Low Volatility Hard Coking Coal Index.

Kestrel Coal Mine is an underground coking coal mine in Queensland of Australia and is the largest operating underground coal mine in the country. About 80% of its output is hard coking coal whereas the remaining 20% is thermal coal and semi-soft coking coal. In 2025, its raw coal output was 8.2m tonnes and its saleable coal output was 5.9m tonnes on 100% basis. Its realised ASP was US$145/tonne and the cash unit cost was A$147/tonne. As at 1 September 2025, the mine had 164m tonnes marketable coal reserves and 406m tonnes of coal resources in accordance with JORC Code, translating into a mine life of 25 years. The profit after tax of the target asset was US$31.6m in 2024 and US$18.1m in 2025.

It is estimated that the transaction cost of the deal is about US$200m, mostly in the form of stamp duty. To finance the all-in US$2.05bn upfront acquisition cost, Yancoal Australia will arrange a US$1.2bn acquisition bank facility, drawing an existing US$200m working capital facility and using its own cash. By the end of 2025, the company had A$2bn net cash on hand.

Mitsui Kestrel Coal Investment holds the remaining 20% interest of Kestrel Coal Mine.

The deal is still subject to the following conditions, including:

1) approval from Australian Competition and Consumer Commission, Australia’s Foreign Investment Review Board, China’s National Development and Reform Commission, Department of Commerce of Shandong Province; and State Administration for Market Regulation;

2) Mitsui waives its pre-emptive rights.

The deal is expected to be completed towards the end of 3Q26.

Our Take

The deal may not go ahead as it is not clear whether Mitsui will exercise its preemptive rights.

Kestrel Coal Mine is a high quality coking coal asset although the unit cost looks a bit high. Based on 2025 numbers, the deal will increase Yankuang Energy’s attributable coal output by 2.6% and its coal reserves by 1.4%.

The upfront consideration values the target asset at 8.5x 2025 EV/ EBITDA, lower than the average of 11.1x of listed coking coal peers. While it is higher than 5.2x 2025 EV/EBITDA of Yancoal Australia itself, only 16% of the latter’s coal output was coking coal in 2025.

As the bulk of the US$200m transaction cost is stamp duty, the bulk of it will be booked as expenses in 2026.

Assuming Yancoal Australia pays interest at 6% per annum for the US$1.4bn bank facilities and the output of saleable coal of Kestrel Coal Mine to be 6m tonnes, we estimate the earnings enhancement from the deal to Yankuang Energy to be about 4% in 2027.

At this stage, we maintain our HOLD call on the H shares of Yankuang Energy.