Western Canadian Coal Corp. (AIM, TSX: WTN) and UK miner Cambrian Mining (AIM: CBM) Wednesday announced they are merging their operations in a Cdn$120 million deal to create a mid-tier coal company.

The acquisition will result in a 30% increase in coal reserves to 230 million tonnes and a 38% rise in coal resource base to 440 million tonnes.

The merged coal miner will have a combined coal production of 3.5 million tonnes annually with the potential to expand to 14 million tonnes.

The merger will generate greater trading liquidity for the combined company, releasing 72.1 million shares now own by Cambrian increasing the public float by 55%. Western is offering 0.75 Western shares for one Cambrian share.

Cambrian currently holds a 34% in Western Canadian Coal shares and owns $29 million of its convertible debentures.

During a conference call Wednesday Western Canadian Coal CEO John Hogg said the transaction adds tremendous value for Western shareholders as it globally diversifies our operations, increases geographic diversification of our coal reserves, expands our product mix, regionally balances our sales, expands our reserves and resources, and increases our production profile both current and in the long-term.

The merged companies will have 72% of their operations in Canada, 23% in the U.S. and 5% in the UK. The combined product mix will include both thermal and met coal.

Western's coal contracts are based on an April to March coal contract year for hard coking and low-volume PCI coals. Cambrian's coal contract calendar year offsets Western's sales cycle With the pace of economic recovery in each region usually at different rates, I am also pleased to have a more balanced sales program for 2009 into the different markets, Hogg told analysts.

The mines we are acquiring have high quality coal reserves and require very little capital at this point, he stressed.

Hogg estimated administrative savings of $6 million, and achieving market synergies by offering an expanded product line to customers.

Western board member Bob Chase said that after the combination the existing board of Western will remain with John Hogg staying on as president and CEO. Western will continue to trade on the AIM and TSX and be headquartered in Vancouver.