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Whitehaven ends talks with potential bidders

May 16, 2011

“Whitehaven Coal of Australia has ended talks with potential suitors from Asia and the US after a near-seven month auction failed to elicit a ‘sufficiently attractive’ proposal that it could recommend to shareholders. The collapse of the auction saw Whitehaven’s shares fall as much as 16 per cent to A$5.43 before they recovered to close down 80 cents at A$5.63. The group declined to comment on reports it was seeking offers of at least A$7 a share, valuing its business at A$3.5bn.

China’s Yanzhou Coal, which paid A$3.5bn for Australia’s Felix Resources in 2009, was one of a handful of parties interested in Whitehaven, together with Korea Resources Corp, the South Korean state-owned company. Aditya Birla Group, the Indian conglomerate, and Peabody Energy, the US coal group that failed in its attempt to buy Australia’s Macarthur Coal last year for A$3.8bn, were also understood to have examined a bid for Whitehaven.”

Source: Financial Times, May 16 2011

Observations:

  • A Korean consortium led by Kores launched the only published bid for Whitehaven in February. Whitehaven started an auction procedure after being engaged by other potential bidders. It now appears none of the auction participants is willing to offer a satisfactory price.
  • The recent rise of the australian dollar makes the purchase of Australian assets less attractive. Commodity markets are setting prices in American dollars, while Whitehaven’s costs are mainly in Australian dollars. As a result, costs increase without revenues going up by the same ratio.

Implications:

  • Both the Australian and the American coal mining sectors are going through a wave of consolidation. However, the Australian market is less fragmented, leaving fewer opportunities for interesting mergers.
  • The key driver for consolidation in North America is cost pressure and the access to export capacity, while the drive by Asian steelmakers to secure supplies of coking coal are the key driver for the same movement in Australia (and South East Asia).

©2011 | Wilfred Visser | thebusinessofmining.com

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