New Hope, Whitehaven, Bandanna, and Carabella also have “for sale” signs on the front door or stashed in a cupboard, with the only determining factor being the price a bidder is prepared to pay.
Whitehaven and Bandanna management declined all bids earlier this year, decisions which shareholders cheered because they were confident that a higher price could be achieved in the future.
Today, those same shareholders are not so sure, because it is possible that the peak season for selling coal, either as a commodity or as a coal mining company, has passed – a point reinforced by today’s development with Chinese company CITIC opting to sell out of Macarthur.
It is the game of guessing the price of coal tomorrow that is causing anxiety at all levels of the business, with optimists and pessimists locked in a tug-of-war which is neatly encapsulated in the fight for Macarthur.
More of the coal-price debate later.
First, a look at the lightning rod which is Macarthur, because the timing of the latest takeover bid for the PCI coal specialist is critical to what’s happening.
Back in mid-July, when the world seemed to be sailing into smoother economic waters – with or without help from Europe – Macarthur and the international syndicate comprising Peabody Energy and ArcelorMittal (PEAM) agreed to conduct due diligence discussions.
The aim of those talks was to find a mutually agreeable price at which PEAM would bid and Macarthur management would recommend acceptance.
The first offer from PEAM at $15.50 was rejected. The second, at $16, was recommended by Macarthur management on August 30. All that was needed was for the major “non-PEAM” shareholders to accept – which they had been slow to do, holding out for more
Until this morning, acceptances had been slow to arrive, with only 22.78% of the stock held by PEAM. Given that PEAM started with a 16.2% stake that means that all a $16 price has been able to attract is a 6.5% response.
The logjam broke when CITIC agreed to the $16 price, though what now needs to be seen is whether everyone gets a 25c top up to $16.25 if acceptances reach 90%.
Why did Macarthur shareholders wait so long and why the change by CITIC which has lifted PEAM to 49% of its target?
More importantly, what does that say about other possible coal deals, such as the price which might be offered for New Hope, Carabella, and other companies that are interested in a deal?
The problem for everyone is knowing which way the world economy is heading, given the painful meltdown of the grand experiment in creating a country called Europe out of 17 separate countries which traditionally have disliked each other – and the growing concerns that growth in China is slowing thanks in part to Europe’s problems.
These are big issues, and not of the sort which normally worry coal miners or coal company investors. They should, because coal is a unique product with demand – and price – directly influenced by overall economic growth.
Problems which have surfaced since PEAM made its move on Macarthur include a wholesale stock market decline, sharply lower prices for other commodities such as copper and, most recently, indications that banks which fund the commodity sector are in trouble.
In New York, Goldman Sachs surprised everyone by reporting a loss for the September quarter. In Paris, there are reports that the banks which fund much of the world’s commodity trading are phasing down that aspect of their lending because of tough conditions at home, and new lending rules which make commodity-lending less profitable and more risky.
And then there are coal-price forecasts which appear to be universally pointing down.
Goldman Sachs, for example, reckons coking coal will slide from its recent peak of more than $US300 a tonne to $190/t in 2013. Semi-soft coal will dip from more than $US200/t to $US135/t, while thermal coal will hang on to a price of around $US120/t until 2015 when it will be trading at $US110/t.
Those downbeat price forecasts are largely a result of the global economy slowing, knocking Asian growth down a peg or two, and raising a question about what is a fair price for a coal company.
Which leads back to the point about the correct value for Macarthur Coal and CITIC’s decision to accept $16 (and perhaps $16.25) because since that price was agreed the stock market has fallen sharply with the metals and mining index down by 14%.
It is the market’s fall which gave the PEAM team the confidence to hold firm at $16 rather than be pushed higher.
Now for the next crop of coal deals, and that all-important question of what are coal companies worth in the current economic climate and a very mixed up stock market.
