March 8, 2012 / 9:28 AM / 5 years ago

UPDATE 2-Xstrata expands Canadian coking coal operations

* Xstrata buys Sukunka deposit from Talisman

* To pay $500 million in cash

* Builds existing Peace River coalfield presence

LONDON, March 8 (Reuters) - Miner Xstrata, which has agreed to a merger with trader Glencore, expanded its coking coal operations in Canada's British Columbia on Thursday with the $500 million purchase of assets from oil explorer Talisman Energy.

Xstrata has been building its presence in the Peace River coalfield, in northern British Columbia, since acquiring First Coal last August. The miner said it would pay cash for Talisman's Sukunka deposit in a deal set to close this month.

Sukunka, a hard coking coal deposit, is adjacent to Xstrata's existing licenses and tenements in the area and has a coal resource of 236 million tonnes in the measured and indicated categories.

"Based on our due diligence and technical analysis, Sukunka has the potential to be a high quality metallurgical coal mine," Peter Freyberg, head of Xstrata's coal operations said.

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

The Peace River region, which supplies coal to steel mills in Japan, Korea and China, has been attracting increased interest as miners eye coking coal, used in steelmaking, as a key commodity, feeding China's economic growth and urbanisation. Anglo American last year scrapped sale plans and decided to retain its own Peace River Coal asset.

Talisman said Thursday's deal was in keeping with its own objective of focusing on core assets.

Xstrata Coal, one of the world's largest exporters of thermal coal, is the fifth largest producer of hard coking coal, with operations in Australia and elsewhere.

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