UPDATE: Xstrata To Buy Sukunka Hard Coking Coal Deposit For $500 Million

A unit of Swiss mining giant Xstrata PLC (XTA.LN) said Thursday it had agreed to acquire a Canadian coal deposit from Talisman Energy Inc. (TLM) for $500 million in cash.

The acquisition comes as Xstrata is in the midst of a merger of equals with commodities trading company Glencore International PLC (GLEN.LN) to create the world's fourth largest diversified mining company with a market capitalization of about $90 billion at the time of the announcement.

The deposit, called Sukunka, is located in the Peace River Coalfield of northern British Columbia, contiguous with First Coal Corporation and Lossan tenements acquired by Xstrata Coal in August and October 2011 respectively.

Hard coking coal has experienced a surge in demand over the past years as China, the world largest steel producer, became a net importer of the steelmaking raw ingredient and other emerging economies continue to undergo a rapid pace of urbanization and industrialization.

Miners have scurried to secure more of the high quality coal in different parts of the world. Last year Rio Tinto PLC (RIO) acquired Mozambique-focused coking coal company Riversdale for about $4 billion, while Anglo American PLC (AAL.LN) decided to retain rather than sell its Canada-based Peace River Coal Ltd. venture.

Sukunka has an NI 43-101 compliant measured and indicated coal resource of 236 million tons and has a pre-feasibility study completed for a longwall hard coking coal mine. Xstrata Coal's technical studies indicate the project potential to realize further value from the resource.

"Based on our due diligence and technical analysis, Sukunka has the potential to be a high quality metallurgical coal mine," Xstrata Coal Chief Executive, Peter Freyberg, said in a statement.

"Once developed, Sukunka would meaningfully increase our exposure to hard coking coal, while unlocking synergies with our neighboring assets in the Peace River coalfield and providing additional regional scale."

At 0838 GMT, Xstrata's shares were up 1.3% or 15 pence at 1,142 pence a share, while the FTSE 350 mining index was up 1.7%. Xstrata has a market capitalization of GBP33.9 billion.

-By Benoit Faucon and Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com (Razak Musah Baba in London contributed to this story.)

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