The European energy situation, explored here last week, is an excellent talking point, but one without a sharp financial edge, yet.
That is coming with moves such as the takeover bid launched by China Kingho Energy for Carabella Resources, an offer pitched at a stunning, boom-time, 110% price premium.
Anyone prepared to offer 42c in cash for a stock previously trading at 20c is obviously putting his money where his mouth is, as well as doing an excellent job of underlining last week’s report on growing European interest in coal, an interest clearly shared by Chinese investors.
For Carabella shareholders the challenge is whether to take the money, either by selling on the market or by waiting for China Kingho’s cash to be mailed to them (sell now might be a good idea, the Chinese can be slow to deliver) – or to stick with the stock in the belief that a higher price might be offered, or that the company will be able to fund the development of its coal assets without outside help.
Fortunately, The Hog does not have to make that the sell-or-hold decision though he does find the Carabella situation to be a perfect analogy for the wider debate about the future of coal.
If you believe in it, buy more coal shares. If not, take the money and run.
The non-believers, led by the anti-coal green brigade, have done a good job convincing some people that coal has no future at all. This belief sits very oddly with millions of people in Europe as their teeth chatter through a cold winter and their bank accounts shrink thanks to soaring energy prices caused, in part, by the need to subsidise green energy schemes.
The believers, and they are swelling in number, can see the long-term game being played out as a crunch point approaches for governments unable to continue using taxpayer funds for windmill farms while the same taxpayers freeze in the dark.
China Kingho, a company with zero profile in the western world, is obviously convinced coal has a bright future, or why else plonk $66 million on the table for a company, which was worth $30 million a few days earlier.
So far, much to The Hog’s amusement, no-one in the anti-coal green movement appears to have recognised the significance of what is happening with Carabella, or what is happening elsewhere in the world of coal where another big player is putting his money where his mouth is.
Ivan Glasenberg, the coal-savvy boss of Glencore Xstrata, is one step ahead of China Kingho, expanding his company’s coal interests in South Africa and Australia with an investment blitz that is outspending other big miners by a ratio of three-to-one.
According to a calculation by the Bloomberg news service Glencore Xstrata has committed $US4.75 billion to coal expansion projects, some which came with last year’s merger between Glencore and Xstrata, but others made more recently.
The China Kingho move on Carabella and Glencore Xstrata’s expansion drive add the financial edge to the philosophical debate about coal.
Non-believers might be lamenting the return of coal (if, in fact it ever went away) while believers are putting cash on the table to back-up their view of the future.
Amusingly for The Hog, because he’s sitting safely on the sidelines, the great divide between believers and non-believers must produce a winner because both sides cannot be right.
Either coal is on the way back, which is why China Kingho and Glencore Xstrata are expanding, or it is not because the world does not want the coal they are proposing to produce from their expanded coal interests.
It is the cash on the table that has added a sharp financial edge to the coal debate and no amount of complaining by the anti-coal brigade can escape the fact that their beliefs carry a price, and they cannot pay.
The people who can pay are those prepared to invest in coal because it is the only cost-efficient way to generate large amounts of base-load power needed to drive industry and warm frozen taxpayers.
