The coal sector continues to experience strong interest in asset acquisition from many quarters with recent buyers from China, Korea, India, and local Australia-listed companies as well, according to the report which was prepared by Patersons’ Andrew Harrington.
“Though many of the larger capped stocks on the market are trading with attached takeover premiums there are still many smaller companies that, in our view, are trading with little recognition for their underlying assets,” he said in the report.
Recent asset purchases or floats on the Australian Securities Exchange have been valued at an average of $3.10 per tonne of measured and indicated resources.
Many of these have been very early stage exploration assets and, in some cases, with no official resources.
Felix, a company with a number of producing assets, was taken over at the end of 2009 at a multiple of $3.50/t.
“Of the large cap stocks, there are very few left with open registers. The top of the tree has been thinned out and is likely to be even thinner with the takeover underway by Banpu of Centennial,” the report noted.
“All of the top-listed producers – New Hope, Macarthur, Riversdale, Aquila, Whitehaven, Gloucester – have substantial strategic shareholders and/or JV offtakers.
“Increasingly, foreign strategic investors are taking stakes in earlier stage coal companies. Northern Energy, Bandanna Energy and Metrocoal have all recently sold shares or stakes in projects to Chinese or Korean investors.
“Some of the transactions reflect positively on nearby or similar projects in some of the smaller coal companies.”
While the spot coal market is softening it is still at high levels, the report states.
As a reminder, contract prices were settled earlier this year. Hard coking coal contracts were settled on a quarterly basis for the first time ever.
The first quarter financial year 2010 price (starting April 1) is $US200/t and annual prices are reported to have been settled at $240.
“We have used the midpoint as the annual average for the FY10 prices. Prices for semi-soft coal are reported to have been settled at around $160, while
PCI prices were settled up almost 100 per cent to $175 per tonne. Thermal coal was settled by Xstrata and a Japanese utility at $98 per tonne,” the report states.
“Currently the market is softening from the highs of June, which peaked at prices over $100 per tonne for thermal coal and $240 for coking coal.
“Regardless companies still report that demand for all coal types into the Asian market continues to be strong. Asian steel mills are returning to higher capacity utilization and thus consuming more coking and PCI coal.
“For thermal coal, prices have recently softened to $85 per tonne. Partly this is being blamed on the off-peak demand of the northern hemisphere summer but also China, which was the biggest element in the recovery in demand over the past 18 months, may be slowing it economic growth.
“The worse than usual rainy season in Indonesia has limited that country’s export growth, which has limited the falls in prices.”
