PERTH (miningweekly.com) – The directors of coal explorer Blackwood Energy have recommended a conditional offmarket takeover offer from Cockatoo Coal.

Cockatoo is offering two of its own shares for each Blackwood share held. The offer represents a 35% premium to the closing price of Blackwood shares on October 16, and a 22% premium to the one-month volume-weighted average price.

Blackwood’s major shareholder Noble Group, which owns a 51.2% stake in the junior, has indicated that it would accept the offer for its entire shareholding, subject to the independent expert concluding that the offer was fair and reasonable.

The coal explorer told its remaining shareholders on Thursday that the transaction was in the best interest of the company, noting that the board had considered a range of potential deals, with the Cockatoo merger proving the most value-enhancing alternative available at the current market conditions.

The offer would also allow Blackwood shareholders to become part of a midtier ASX-listed metallurgical coal producer with the potential to expand its production at its Baralaba mine, in central Queensland, to about 3.5-million tonnes a year.

“The transaction is a very attractive proposition for Blackwood’s shareholders to realise value in a producing company of scale. The proposed transaction is an opportunity for Blackwood’s shareholders to participate in an enlarged production and exploration entity, underpinned by a high-quality pulverised coal injection producing asset,” said chairperson Barry Bolitho.

He pointed out that the enlarged Cockatoo would have access to cashflow, a funded Baralaba expansion project, and an extensive development portfolio in the combined acreage presently held by Cockatoo and Blackwood.

“There are few opportunities for shareholders to participate in high-value metallurgical coal projects, and the enlarged Cockatoo has the potential to become the leading independent Australian metallurgical coal producer,” he added.

The offer was subject to a number of key conditions, including a minimum acceptance of 52.1% and the successful completion of a A$153-million capital raising announced by Cockatoo on Friday.

Cockatoo reported that the equity raising would comprise of three interconditional placements.

The A$50-million would be raised from SK Networks, A$43-million from Noble and A$60-million from institutional and sophisticated investors.

A share purchase plan would also enable existing shareholders to participate in the capital raising.

Cockatoo stated that the funds raised from the placement would be used to repay a A$95-million loan facility, and to provide funding for the Baralaba expansion.

During the 2013 financial year, the Baralaba mine delivered 707 381 t of coal and sold some 544 406 t.

The A$286-million expansion of the project, which would increase production to 3.5-million tonnes a year, is on track to meet the current Wiggins Island coal export terminal’s timetable, and would produce its first coal by 2014.

Cockatoo said that it was confident of receiving the necessary environmental approvals required for the project, pointing out that a mining lease had already been granted for a one-million-tonne-a-year operation, and the fact that the expansion project had been declared a prescribed project by the Queensland government.

Besides the funds raised through the equity placement, Cockatoo and its joint venture partners have also secured a A$255-million funding package from banking group ANZ, to provide funding for the expansion project.

Furthermore, the miner would seek potential investors to provide a mezzanine funding facility of up to A$50-million prior to the drawdown of the project finance facility.

The company would consider increasing the size of the planned institutional placement if the offer was oversubscribed, in order to reduce the mezzanine financing required to ensure that the Baralaba expansion is funded to a P50 contingency.