U.S.-based mining group Walter Energy Inc is to buy Canada's Western Coal for C$3.3 billion ($3.3 billion) to create the world's leading producer of metallurgical coal used by steelmakers.
The deal shows how surging global steel production, driven mainly by China, is stimulating M&A activity in the mining sector, with coal producers scrambling to take advantage of booming Asian demand.
Walter Energy will pay C$11.50 a share, a 56 percent premium to Western Coal's closing price on November 17, the day before Walter Energy announced its proposal.
"This is a transformative transaction at a time when global demand for metallurgical coal is surging," said Joe Leonard, interim Chief Executive of Walter Energy.
The enlarged company will have total coal reserves of about 385 million tons and expects to produce more than 20 million tons of coal by 2012.
Under the deal, Western Coal shareholders will get about C$2.1 billion in cash and own about 14 percent of the enlarged company.
The transaction is expected to boost Walter Energy's earnings per share in the first full year after completion which is expected by the second quarter of 2011.
Walter Energy had said on November 18 that it was in talks to buy its Canadian peer and on Thursday extended the 14-day period for exclusive talks.
Steelmaking, or metallurgical, coal is a key ingredient used in about 70 percent of worldwide steel production and with steel demand forecast to hit a record 1.34 billion tons in 2011.
"Our combined production capacity and geographic footprint leaves us extremely well positioned to benefit from favorable sector dynamics driven by increased steel production in markets such as China, India and Brazil," said Leonard.
Shares in London-listed Western Coal were up 7.2 percent at 0933 GMT, outperforming a 0.1 percent climb in a British mining index .FTNMX1770