CANBERRA: The contest to buy Rio Tinto’s $1 billion-plus coalmining portfolio is understood to have widened to about four parties, as surging commodity prices prompt lenders to reopen their doors to the resources industry. Already, Yancoal and Glencore are competing for the thermal coalmines.
Both are said to be strong contenders, but other parties are believed to have entered the frame in recent days, amid a change in debt market conditions. Possible interested suitors include private equity firm Apollo, which is in due diligence to buy Anglo American’s Grosvenor and Moranbah North coalmines in Queensland.
Another is perhaps the BHP Billiton-Mitsubishi Alliance, which was the under-bidder in that competition, although others doubted that the BMA or Apollo would consider buying assets that produce thermal coal. Despite the high quality of the mines being sold through Deutsche, thermal coal is out of favour due to a shift towards renewable energy and environmental concerns.
Some market analysts believe Yancoal, which is eager to secure long-term supply into China, and Glencore, a trading house that can maximise the returns on its position, are the most logical buyers. The pair are said to be in advanced talks for Rio’s portfolio, which includes Hunter Valley and Mount Thorley Warkworth thermal coal operations in NSW. It is expected to sell for at least $1bn.
A note from HSBC cites the rampant gains in both the coking coal price, which has more than doubled from $US90 a tonne in June to $US226, and the thermal coal spot price, which is $US89 a tonne, compared to the $US54 it traded at around June. While in some respects this is good news for coalminers, the fluctuating prices are creating challenges for advisers working on deals, trying to determine the right price for the assets at a time the overall sector appears to be improving.
According to a note from HSBC, coalminers are also now benefiting from higher contract prices. The bank noted that a fourth-quarter contract price for coking coal negotiated with a major Japanese buyer was 117 per cent higher than the third quarter price at $US200 per tonne, in a deal that will likely set the benchmark for the quarter. For thermal coal, the contract price is set annually and is fixed through to March 2017, so the impact is difficult to predict.
The latest developments are also likely to hold up the sale of Peabody Energy’s two Australian mines. Lazard is working for the bankrupt US miner here in Australia. It plans to sell its Metropolitan underground coking coal mine near Helensburgh in NSW and its Millennium Mine 160km southwest of Mackay in Queensland.
There are also plans to close Peabody’s Moorvale open cut coking coal mine in Queensland. Peabody has a 73 per cent interest in Moorvale, part of its Macarthur Coal acquisition more than five years ago for about $5bn. During the 2016 financial year, the value of coking coal exports reached $119.5bn, of which two-thirds was high quality, and HSBC says that based on the coal price increases, coking coal export values could rise by about $20bn over a year.
The Wall Street Journal also reported last week that private debt firms such as Lone Star and Oaktree were in search of Australian resources investment opportunities at a time they believe commodity prices may have stabilised. Glencore could be an eager buyer of Peabody Energy assets, as the company is understood to be partaking in other acquisitions in Australia at a time it also divests its G’Rail coal haulage operation in the NSW Hunter Valley.
