If the reports are correct, Nathan Tinkler appears to have lost none of his incredible negotiating skills.
After all, when was the last time a heavily indebted entrepreneur fending off creditors on all sides managed to sell his biggest asset to the financiers that lent the cash in the first place? And at a whopping 40% premium to the ruling market price!
Call me old fashioned, but the traditional practice is for the financier to seize the asset, not buy it.
The posturing and spin surrounding Tinkler’s forced exit to “partly repay debt” from Whitehaven Coal clearly is designed to put a floor under the beleaguered company’s share price.
The media may have bought the story. Investors clearly didn’t. The supposed sale, at $2.96 a share, barely managed to lift Whitehaven’s stock price beyond $2.20.
Tinkler’s hugely destabilising influence on the board and management – following a failed privatisation bid last year and an equally unsuccessful attempt to overthrow the board – means his exit can only be a positive for Whitehaven’s long suffering shareholders.
At current prices, Whitehaven’s huge Maule’s Creek project in the Gunnedah Basin, is valued at zip, superficially making the company appear good value. And given Whitehaven will be one of the few pure coal plays on the market – with a tier 1 project to boot – it does hold attraction.
But the global situation for coal now looms as the company’s biggest concern. Thermal coal prices have slumped alarmingly and demand from China is under a cloud, particularly if China introduces an emissions trading scheme.
Meanwhile, the company’s Narrabri mine produces low quality PCI coking coal which attracts a discount.
Maule’s Creek, meanwhile, only recently was given the regulatory nod and is not expected to begin mining operations until late next year with production estimated at 10 million tonnes per annum from 2016.
With a projected mine life of at least 30 years, Maule’s Creek will produce semi-soft coking coal and high quality thermal coal.
Industry giants BHP and Rio Tinto both have been looking to lighten their exposures to thermal coal, further dampening demand for the group.
On the plus side, Whitehaven could a major beneficiary of the rapidly sliding Aussie dollar. With costs in Australian dollars and future revenues in US dollars, the currency slide should partly or even fully offset the looming weakness in commodity prices.