A Cool Head on Coal

Issue 141, September 2015

Once a busy corner of frenzied bidding battles, Australian coal miners have become a dwindling breed.

Battling thermal coal prices of $56 per tonne, down from over $150 in 2011, Whitehaven is nursing losses after an ill-timed acquisition, Cockatoo Coal's share count has billowed to 3.4 billion and Bandanna Energy has dropped from $2 to 1 cent.

Coal mining majors have been blindsided just as badly, with Rio Tinto, Anglo American and Peabody all currently trying to exit Australian thermal coal. Vale meanwhile sold its Isaacs Plains asset in Queensland this year for just one Australian dollar. Three years ago, 50 per cent of the mine sold for A$430m.

But for two groups, Wesfarmers and New Hope Corp, prices are moving to their advantage. In glaring contrast to the wider industry, both have consistently bought in at the bottom and both have one thing in common: their coal businesses are run by conglomerates, with eyes on many disparate industries at once.

Wesfarmers

Valued at A$44bn ($31bn), Wesfarmers is a supermarket, farming and insurance group, yet its timing in coal has been faultless, picking up the Bengala mine at a cyclical trough in the 1990s and its Curragh mine in Queensland at another low in 2000.

It has doubled tonnage at Curragh to over 8m tonnes per annum and last year paid Peabody A$70m for a bordering tenement, which changed hands in 2010 for A$334m.

Earnings at its resources business have slumped, it has shortened shifts and announced three rounds of job cuts, but the division has remained profitable and is rumoured to be eyeing a coal deal in Canada.

New Hope

New Hope is a straight-up coal miner, but runs a profitable side-business in cattle grazing and made A$326m in 2010 by selling a coal-gas business to Royal Dutch Shell. It is also 60 per cent owned by Washington H Soul Pattinson, a listed holding company for the Sydney-based Millner family, with interests in everything from brickmakers to drug stores.

New Hope famously picked-up the East Saraji coal tenement in Queensland after it was relinquished by BHP Billiton in 2002, drilling out the deposit and selling it back to BHP for A$2.5bn in cash in 2008, after coal prices had tripled.

According to results this week, the company has suffered impairments on its oil assets, but underlying profits are rising and New Hope has paid over A$200m in dividends...

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“Be greedy when others are fearful...”

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