MARKETS SPECTATOR: Origin's cold coal

What is it about Origin Energy’s $659 million purchase of coal and hydroelectricity power generator Eraring Energy that has got investors so glum? At 1359 AEST the stock was down 36 cents, or 2.9 per cent, to $12.21, after falling as much as 4.4 per cent to $12.02.

It may be that some investors have concluded Origin’s latest coal deal is not as good for the company’s bottom line than the previous one.

In March 2001 Origin paid $950 million for a 17-year coal deal. From 2015 to 2032, the New South Wales-run Cobbora coal mine agreed to supply as much as 5 million tonnes a year to Origin.

Now the Cobbora-Origin agreement has been declared null and void. Origin gets $300 million back from the $950 million it had already paid for Cobbora coal.

The new coal supply agreement enables Origin to source 24.5 million tonnes of coal from Centennial Coal for eight years from 2015. Origin did not comment on the financial terms of its Cobbora or its Centennial coal agreements – except to say they are comparable.

But that’s not what some investors think. They think Origin got a great deal on Cobbora, with some estimating the energy giant would have paid about $30 a tonne for the investment. Origin, investors figure, may have had to pay more for its coal in the new deal with Centennial.