Acquisition of metallurgical coal mine to bring growth and synergies

Acquisition of metallurgicalcoalmine to bringgrowth and synergies Target PriceUnder ReviewUp/Downside–Current PriceHK$39.20 Yancoal (YAL) announcedaftermarket close yesterday (14 Apr)the acquisitionof 80% interest in Kestrel Coal Mine(metallurgicalcoalmine in Queensland,Australia)for an upfront consideration of US$1.85bn(plus US$550mncontingent paymentbased on future coal price). Onanattributable basis, theacquisitionwill add 12% annual saleable coalproductionfor YAL.Wesee theacquisition value accretive as (1) the idle cash will be deployedto enhance ROE;(2) synergies can be achieved due to the close location to YAL’s existing mines;(3) product mix will be improved as metallurgical coal portion of YAL will beincreased to 22% from 16%.While the acquisition valuation of 8.5x 2025EV/EBITDA is higher thanthe5.5x that YAL is currently trading at, weviewthisasjustified due to thegrowth contribution.The transaction is expected to becompleted by end of 3Q26.We have yet to revise our modelawaitingfor morefinancialdetails(full circular to be dispatched)and the approval fromshareholders and different authorities.MaintainBUY(TPunder reviewas thelatest share price is higher than our TP). Wayne FUNG, CFA(852) 3900 0826waynefung@cmbi.com.hk Details of Kestrel Coal Mine.The marketable coal reserves reached164mt and coalresourcesreached 406mtin Sep 2025(mine life: ~25years).Kestrel produced~6mt of saleable metallurgical coal in 2025. Salesvolume was 5.7mt, of which 78%wassold to India, Japan and Korea.Theunitcost in 2025(FOB excluding royalties,inventory movement andpurchased coal)was A$147/t, making it in the top 35% of global seabornemetallurgical supply on the margin curve. Shareholdingstructure.YAL will acquire 80% interest in Kestrel from EMRCapital Advisors, Kestrel Coal (EMR), EMR CapitalManagementand AdaroCapital.The remaining 20% interest will continue to be held by MitsuiResources. Considerationandfunding source.The upfront consideration(US$1.85bn) will be funded by US$1.2bncommittedacquisition facility,US$200mncommittedworking capital facility and existing cash.Besides,thereis also a price-link contingent consideration of a maximum ofUS$550mn.YAL will pay the sellers 30% of coal share revenue from Kestrelthat is attributable to benchmark coal pricing exceeding US$225/t in any ofthe first five years following theacquisition. Source: FactSet Related Reports 1.YancoalAustralia–Coal price likelygains alongside the surging gas price;Buying opportunity on Yancoal–8Mar 2026 (link)2.YancoalAustralia–2025 profit belowconsensus;resilient coal price tosupport 2026 earnings–26 Feb 2026(link)3.YancoalAustralia–Productionvolumein3Q25affectedbyunfavourable weather–21 Oct 2025(link) Source: Company data, CMBIGM Source: Company data, CMBIGM Source: Company data, CMBIGMestimatesNote: Excluding government royalties Risk factors:(1) decline in coal price; (2) elevated input cost; (3) extreme weather thataffects production and delivery. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 monthsCMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important Disclosu