Bloomberg reported that an electrician turned dealmaker is poised to make the biggest bet ever on coal mining in Australia just as prices of the fuel tumble.
According to people familiar with the matter, after his initial approach was rejected on June 13 Mr Nathan Tinkler has held talks with banks to fund a bid for Sydney-based Whitehaven Coal Ltd. The 36 year-old multimillionaire is seeking to acquire the 79% he doesn’t yet own of a company already trading at more than 38 times estimated earnings, making Whitehaven the most expensive coal mining company globally with a market value of more than USD 1 billion.
Macquarie Group Ltd said Mr Tinkler may now need to pay a 35% premium, valuing Whitehaven at AUD 5.6 billion. While he would be buying a company that is targeting a fivefold increase in coal production by 2016, prices for the commodity are mired in their worst slump since the financial crisis. Standard Chartered Plc said Mr Tinkler may need to weather four more years of a bear market as the start of mining projects in Australia and exports from Indonesia and Colombia further depress prices for coal.
Mr David Cotterell a Sydney based analyst at Nomura Holdings Inc said “To do a deal like this, you have to be a lot more bullish on coal prices than the market is right now. Unless the market’s wrong, you could be waiting a long time to get your money back.”
1. Bank Talks
Mr Tim Allerton a spokesman for Tinkler declined to comment on his plans for Whitehaven as did Ms Kate Kerrison a spokeswoman for Whitehaven.
Whitehaven on June 13 said it rejected a conditional and incomplete proposal related to a possible buyout led by Tinkler Group Pty. Two people with knowledge of the matter, who asked not to be identified as the details are confidential, said this month Mr Tinkler held talks with banks including Barclays Plc, JPMorgan Chase & Co and UBS AG to finance a bid. Tthe Australian Financial Review reported on June 26 without saying where it got the information a bid may come as soon as next week.
Mr Tinkler offer came less than six weeks after he sold Brisbane based Aston Resources Ltd which controls the Maules Creek steelmaking coal project and another company called Boardwalk Resources Pty to Whitehaven. The AUD 2.5 billion deal announced in December, made Tinkler the largest shareholder in Whitehaven. His 21% stake valued at AUD 1.1 billion at the end of December is worth AUD 874 million after a 22% drop in Whitehaven this year.
2. A Crime
According to a May presentation from the company Acquiring the rest of Whitehaven would give Mr Tinkler control of five mines in eastern Australia already in production, two under development and an additional five that are being explored. The miner produces a mix of coking coal used for steel making and thermal coal, bought by power generators to make electricity.
Whitehaven which put itself up for sale in October 2010 only to rebuff the bids it received as too low and traded as high as AUD 7.30 a share in April 2011. The stock ended yesterday at AUD 4.11 a share.
Mr Andrew Pedler an analyst at Wilson HTM Investment Group in Brisbane said “It will be a crime for Whitehaven to be bought at these prices. Whitehaven is significantly undervalued.”
Even after Whitehaven slid 44% from its all time high, the company is valued at more than 38 times analysts’ earnings estimates for the fiscal year ending this month. That’s more than any other global coal company with a market value exceeding USD 1 billion and compares with a median of 11 times for the group.
2. Coal Prices
Tinkler is making his approach even as analysts project an oversupplied market will keep the price of thermal coal which accounts for 69% of Whitehaven output, depressed.
According to IHS McCloskey a coal data provider at USD 83.10 per tonne thermal coal at the Australian port of Newcastle is already down 25% this year through June 22. The Asian pricing benchmark is poised for its worst quarter since the aftermath of the collapse of Lehman Brothers Holdings Inc.
According to Standard Chartered with US coal-fired power generators increasingly switching to natural gas and freeing up more of the nation coal for export and output in Australia, Indonesia and Colombia increasing, global coal export capacity will jump 85 percent by 2017 from the current limit of 1.2 billion tonnes.
3. Newcastle Coal
Nomura said in a May 24 report more than 60 projects in eastern Australia are set to produce an additional 100 million tons of coal by the end of 2017 compared with Australia’s current annual coal exports of 300 million tons.
According to Goldman Sachs Group Inc Newcastle coal, which stood at USD 192.50 a ton in July 2008 will fetch USD 90 a ton in 2017. That matches Nomura long term forecast for the fuel. The price of coking coal which is set in negotiations between suppliers and steelmakers fell to USD 206 per tonne for the quarter ending June 30 from a peak of USD 330 a year before.
Mr Peter Arden senior research analyst at Ord Minnett Ltd in Melbourne said “There’s an awful lot of downward pressure on coal pricing. “Returns will not be as good as they have been recently.”
Mr Andrew Sullivan a Sydney based analyst at Macquarie said to win over shareholders, Mr Tinkler may have to offer AUD 5.53 a share. That would represent a 30% premium to the shares’ 30 day moving average before the first approach. It would also be a 35% premium to yesterday close.
Source - Bloomberg
(www.coalguru.com)
