China's fourth-biggest coal miner, Yanzhou Coal Mining Co, is once again reportedly in talks to acquire Australia's Felix Resources Ltd for approximately $2.8 billion, which could make it China's biggest acquisition in Australian coal industry.

This morning, Felix requested the Australian Stock Exchange to suspended its shares from trading, pending the outcome of negotiations on a potential change of control transaction, while Yanzhou's stock trading was halted at the Hong Kong Stock Exchange.

Yanzhou, which is engaged in underground coal mining, preparation and processing, sale and railway transportation of coal, is reported to fund the acquisition through cash and bank loans.

Felix managing director Brian Flannery had said in December 2008 that the company was open for takeover talks and had confirmed that Felix was in talks with an unidentified company. (See: Chinese coal miner eyes Australia's Felix Resources) 
 
Shandong province-based Yanzhou, majority owned by the Yankuang Group, had been interested in acquiring Felix Resources for over a year, but the talks had broken off in January as the global financial crisis became more severe and prices of coal collapsed.
 
Yanzhou again entered into negotiations in March, which broke off this time over price disagreements. Yanzhou was willing to pay A$2.35 billion, while Felix shareholders and investors wanted as much as A$2.9 billion.

Felix managing director Brian Flannery and chairman Travers Duncan own 15 per cent stock each of Felix, while Hans Mende, a director in the company, who controls American Metals and Coal International, owns 19.3 per cent and David Knappick, former chief financial officer, owns 7.4 per cent of Felix.

Yanzhou already has a presence in Australia since 2004, when it acquired the Southland mine in NSW for about $30 million.
 
Yanzhou has once again shown interest in the acquisition of Felix since the global credit market has eased and the prices of commodities have started to pick up.
 
The deal is reported to be finalised at A$19 a share compared with Felix's last traded price at A$16.90 a share, which would value the Australian miner at approximately A$3.3 billion ($2.8 billion).

Australia's coal mining has attracted a host of international companies, especially from China, which has a huge quantity of coal reserves, though most of it is of low-grade quality, making the firms look at overseas markets to secure their supplies.

In November, China's largest coal miner, Shenhau Energy, paid nearly A$300 million for a coal exploration licence in Australia and in September, Xinwen Mining acquired coal tenements in Queensland of Linc Energy for $1.5 billion.

In February, Swiss miner Xstrata acquired Jubilee Mines for A$3.1 billion, while Luxembourg based ArcelorMittal took a 19.9-per cent stake in Macarthur Coal.

Felix is a coal explorer and miner and produces high-grade semi-soft coking coal, used by steelmakers, and it also produces thermal coal, used by power stations.

It has three mines in Queensland and two in New South Wales and exports the coking coal to Japan, Europe and Korea while it sells thermal coal to power stations in New South Wales and Queensland.

Felix's new coal project in Moolarben holds an estimated 406 million tonnes accessible from an open cut mine and a further 299 million tonnes underground, and is estimated that this project would be the key driver to the company's net profit that would more than double to $1.12 billion by 2011.

But analysts are worried that the acquisition will come under close scrutiny of Australia's regulator and face immense opposition from ordinary Australians as well as from opposition parties especially after the controversial failed bid by China's state-owned Chinalco for Rio Tinto in June, (See: Rio terminates Chinalco deal; to raise $15.2 billion through rights issue) and the arrest of four Rio Tinto employees by China in Shanghai over alleged charges of spying and bribery. (See: China arrests four Rio Tinto employees) 
 
In April, just three months before Rio Tinto terminated the Chinalco deal, nearly 57 per cent of Australians said Chinese investments in the natural resources sector should be restricted and the country would be better off if Australians held the ownership of these companies, according to a poll conducted by Essential Research.