MARKETS SPECTATOR: Tinkler's lesson in timing

Farallon Capital Management knows a thing or two about buying low and selling high. The San Francisco-based hedge fund run by former Goldman Sachs corporate finance executive Andrew Spokes has boosted its stake in Whitehaven Coal to 16.62 per cent. Farallon has done so by buying shares from the once lauded now distressed dealmaker Nathan Tinkler who had a 19.4 per cent stake in Whitehaven at the beginning of 2013.

Farallon, a former financier to Tinkler, has now at least half of its former client’s stake in Whitehaven. Whitehaven shares have dropped 53 per cent in the last 12 months. Yesterday the stock fell 4 cents, or 1.9 per cent, to $2.11 and is trading at 0.65 on a price-to-book basis, according to Bloomberg data.

“Farallon believes the current market price of Whitehaven shares does not reflect the value of the company,” said the hedge fund in a statement. “Farallon looks forward to growth in shareholder value over time.”

In 2012 power station coal at the port of Newcastle suffered its steepest annual decline in seven years, falling 19 per cent. That spelt the end of Tinkler's audacious $5.20 a share bid for Whitehaven in July. Tinkler’s financiers included, in addition to Farallon, Credit Suisse and the Kuok Group. They refused to back the Inverell-born Tinkler’s $5.3 billion takeover of Whitehaven.

Power station coal destined for Newcastle has recovered from its 52-week low of $78.05 a metric ton on October 19. Its mid price is now $82.95 a metric ton, according to Bloomberg data. Analysts earlier this year had predicted the coal will average $98.51 a metric ton, according to Bloomberg.

Whitehaven is often talked about as having one of the best coal producing profiles of any such company in Australia. It currently has four mines and a fifth is expected to start production later this year. Whitehaven has enough port and rail capacity to nearly double output to 9 million metric tons in the 12 months ending June 30.

In January Whitehaven was trading at 1.01 times book value, according to Bloomberg. In 2011 it was trading at 2.77. Whatever the immediate prospects of China’s economy and its demand for coal or the increasing concern the burning of coal has on the environment, Farallon has judiciously built its stake to the point where it may very well reap large rewards.