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Consolidation in coal mining as steel industry heats up

November 22, 2010

“Vallar, the cash shell founded by financier Nat Rothschild, is paying $3bn to create a mining company that will see Indonesia’s powerful Bakrie family debut with a London listing for their interests.

A new company bundling together the assets of two Indonesian groups and the shares of Vallar will be listed in London as Bumi Plc. Shares in Vallar, which raised £700m ($1.1bn) in a public flotation in July, will be suspended.”

Source: Financial Times, November 16 2010

“Walter Energy Inc. is in talks to buy Canadian rival Western Coal Corp. for $3.24 billion to form a steelmaking-coal giant, the latest in a string of deals in the commodity sector as mining companies race to corner reserves ahead of rivals.

If the deal goes through, the combined company would have more than 20 million tons of annual coal-production capacity by the end of 2013 and would be the world’s largest publicly traded ‘pure-play’ metallurgical coal producer…

Massey Energy Co. is exploring a takeover offer from Alpha Natural Resources Inc., the biggest U.S. metallurgical coal producer. Global steelmaker ArcelorMittal is also interested in Massey.”

Source: Wall Street Journal, November 19 2010

Observations:

  • Vallar, a new mining company listed on the London Stock Exchange in June, will combine the coal mining assets of Bumi and Berau, the largest and fifth-largest coal miners of Indonesia, to create the largest exporter of coking coal to China.
  • North American coking (or metallurgical) coal producers are exploring mergers or partnerships to create a player that can export both to the east and the west.

Implications:

  • So far coal is one of the resource businesses that is least consolidated. Very few players are able of supplying coal around the world. The moves in North America and Indonesia indicate a trend to create larger suppliers in order to have a better negotiation position for contracts with steel makers.
  • Vallar is planning to use the Indonesian operations as a platform for further expansion in Indonesia and abroad. When listed the company mentioned it would be able to focus principally on regions and commodities where it could leverage the extensive network and strong prior operating and investment experience. As James Campbell, one of the founders, is a former executive of Anglo Coal, the move into coal mining does not come as a surprise.

©2010 | Wilfred Visser | thebusinessofmining.com

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