Xinwen to Pay A$1.5 Billion for Australian Coal Areas

By Angela Macdonald-Smith

Sept. 5 (Bloomberg) -- Xinwen Mining Group Ltd. agreed to buy two coal exploration permits in Australia for A$1.5 billion ($1.2 billion), becoming the latest Chinese company to buy into the nation's resources industry.

Xinwen will buy the Teresa licenses in Queensland state from Linc Energy Ltd., Brisbane-based Linc said today in a statement to the Australian stock exchange. Linc, which is seeking to develop a gas-to-liquids project in Queensland, posted a record gain in Sydney trading.

State-owned companies in China, the world's second-biggest energy consumer, plan to spend as much as A$30 billion this year buying into Australian mining and energy companies to secure resources to meet rising demand, Melbourne-based RMIT University estimates. Sinosteel Corp., China's second-largest iron ore trader, China Petrochemical Corp. and Aluminum Corp. of China Ltd. are among investors in Australian resources ventures.

``Australia is still really the benchmark as far as good- quality coal is concerned and the Asians have demonstrated they are willing to pay up,'' said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. ``The tenements are in the right location as far as the Chinese export markets are concerned.''

Calls to Xinwen Mining's office weren't answered.

Linc Energy advanced A$1.30, or 43 percent, to A$4.35, the highest in more than two months.

`Underwrites Aspirations'

``This deal effectively underwrites Linc Energy's gas-to- liquids commercial aspirations over the coming years,'' Linc Managing Director Peter Bond said in today's statement.

Shandong-based Xinwen Mining has operations in provinces including Shandong, Xinjiang, Inner Mongolia and Shaanxi. It produces 15 million metric tons a year of coal and aims to boost capacity to 40 million tons a year by 2010, according to its Web site.

Linc is seeking to develop a A$850 million project to convert coal into synthetic gas and then to clean diesel in what is set to be Australia's first such venture. The company said in July it intended to seek bids for the Teresa coking coal deposits.

A sale contract for the EPC 980 and EPC 1226 permits will be completed over the next month, with state and federal government approvals are expected to take about 45 days, Linc said. The company in July announced an exploration target at the EPC 980 license of between 400 million and 500 million tons of coal.

Xinwen, which owns interests in ``a number'' of Chinese steel mills, agreed to pay Linc an initial installment of A$150 million immediately on receipt of the government approvals, Linc said. The balance will be paid in six additional installments.

Linc is poised to start up a pilot clean-diesel plant at its Chinchilla site in Queensland within weeks, and the demonstration plant is due to start in early 2011.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net