RICH PICKINGS: Macarthur's forgotten man

As the battle over Macarthur Coal rages, the Queensland miner's founder Ken Talbot is quietly digging his way into the billionaires club.

The contrast couldn’t have been starker. While the extraordinary battle for control of Queensland coal company Macarthur Coal has dominated the business pages in the last two weeks, you had to look very hard to find mention of the man who founded the company, Ken Talbot.

But there he was, tucked away in a business brief in the Australian Financial Review after investing $7 million in unlisted company Advent Energy, which is exploring for oil and gas off the NSW coast.

It’s a long way from running Australia’s most sought after coal company, but it’s likely that Talbot isn’t too worried about staying well out of the lime light, with his focus firmly on the smaller end of the sector.

Talbot is keeping a low profile for a couple of reasons. The first is that, in August, he will face court over charges he made 35 corrupt payments to former Queensland Cabinet minister Gordon Nuttall, who was jailed last year for seven years for accepting 36 payments from Talbot and another businessman, Harold Shand.

Talbot has politely refused to comment on the Macarthur battle (including for this story) or much else for the last six months. Clearly his legal team do not want to run the risk of prejudicing his trial in any way.

Secondly, small mining companies are now where the bulk of Talbot’s wealth is held. Since selling out of Macarthur, Talbot has become an active investor and trader in mining minnows, building up a portfolio of listed shares worth more than $300 million and taking stakes in several unlisted companies.

Astute buying and well-timed trades mean Talbot is now hurtling towards the billionaire’s club. That makes him one of the Australian resource sector’s wealthiest individuals – but it also guarantees his trial will be one of the most watched in Australian corporate history.

Talbot’s portfolio of listed investments (see table below) highlight his basic investment strategy, to diversify across three main areas: carbon materials (coal, iron ore and chromite), energy (uranium and LNG) and non-ferrous metals (nickel, copper, zinc, lead, molybdenum and tungsten).

While Talbot says on his website he takes a long-term strategic view, the performance of the stocks in the last 12 months has been impressive, with the average share price increase of the 13 companies up an impressive 248 per cent. This has been driven by five-fold increases in the share prices of Robust Resources and Sphere Investments, and an 11-fold increase in the price of Canadian miner Southern Hemisphere Mining.

When we examine the portfolio in terms of how the stocks have performed since Talbot first invested, the picture is less spectacular but still impressive.

Despite the recent fall in the share price of Karoon Gas, it remains Talbot’s biggest listed holding and one of his canniest buys, having more than tripled in value since he invested in April 2007.

Robust Resources has also been an impressive performer. Talbot bought in via a placement in July 2009 and the stock has since increased five-fold.

image

* Listed in Canada, prices in AUD Source: Talbot Group

However, it should be pointed out that a number of investments remain well and truly under water, including Canadian company Laramide Resources, Sphere Investments and Cloncurry Metals.

Of course, in the area of resources investing, a few stragglers are inevitable and many of these holdings are relatively small.

As well as investments in listed companies, Talbot has bought into a number of unlisted mining companies as well, including Advent Energy (a 10 per cent stake, according to Talbot Groups' 2009 annual report), Xanadu Mines (3.42 per cent) JAB Resources (10.5 per cent) Brazlron (8.6 per cent) Bellzone Mining (4.65 per cent).

Valuing these investments is tough given they are private companies and at an early stage of their development, but the geographic spread of these companies (they operate in countries including Brazil, Albania and Mongolia) reinforces Talbot’s diversification strategy.

Throughout his career, Talbot has also invested outside the resources sector, most notably in the hotel sector (he sold his pub group for about $130 million at the height of the pub boom). These days, planes are his big non-mining money spinner. According to a report in The Sydney Morning Herald in November last year, Talbot Group accounts show he owns $65 million worth of aircraft and a $10 million hanger.

But without doubt the biggest asset in Talbot’s fortune is cold hard cash, the proceeds of a string of asset sales in the last few years.

Talbot took around $640 million from the sale of the bulk of his Macarthur stake in May 2008, selling at $20, above the current prices being talked about by Macarthur bidders.

Later that year, he made a quick profit after investing in Canadian company PBS Coal. Talbot bought a 19.9 per cent stake in July, only to see PBS acquired by Russian steelmaker Severstal a few months later. Talbot is reported to have made a profit of about $100 million on the deal after selling his stake for about $285 million.

In November 2009, Talbot also cashed in his stake in Riversdale Mining for about $190 million, although it should be pointed out he sold at a loss and also may have sold too cheaply, given the stock has since risen from $6.10 at the time of sale to $9.73.

In a smaller deal in March, Talbot also sold a stake in Southern Gold for $3.3 million.

In total, Talbot’s share sales have reaped around $1.12 billion in the last two years. An assessment of Talbot’s investments would indicate he has made about $650 million of investments during that period. Taking a conservative view, he has probably been left with a pile of cash of around $500 million.

Even on a conservative valuation, it would appear Talbot’s fortune is worth around $850 million, depending on the value of his listed portfolio at any one time.

So where to from here? And more specifically, where will Talbot deploy his cash?

After selling out of Riversdale last year, Talbot’s resources director Dennis Wood said Talbot was reverting to the strategy used at Macarthur of building mines and projects from the ground up. He has already invested in a coking coal project in Mozambique and is also said to be looking at opportunities in Asia.

If Talbot can find the right project, his wealth could well break through the $1 billion barrier. But that may take time – at least until the dark legal cloud hanging over Talbot’s career shifts.

Related Articles