Whitehaven Coal
Recommendation
Former electrician turned coal barron Nathan Tinkler has made a takeover offer for Whitehaven Coal. The price and terms of the deal are yet to be disclosed but Whitehaven’s share price has inched higher. Management have rejected the bid as incomplete and opportunistic.
At a time of falling commodity prices and tight credit, the bid is a surprise. Tinkler has just sold the Maules Creek coal mine to Whitehaven and currently sits on the register as a major shareholder. He needs the support of other major shareholders, including managing director Tony Haggarty, to succeed. That’s unlikely to happen. At best, the bid may lure another party, but Whitehaven has tried to find a buyer since 2011 without luck. A sale now is unlikely. The share price has fallen 30% since April as investors fret about falling coal prices and a major capital expenditure program.
Whitehaven recently sold 10% of Maules Creek to Japanese utility J-Power for $370m, valuing the mine at $3.7bn. Whitehaven’s enterprise value today is just over $4bn and, following the asset sale, Whitehaven sits on net cash. The rest of its coal mines appear to be scantily valued. Risks, however, are high. The coal market is depressed by a relentless supply of American coal into Asia yet Whitehaven’s ambitions are sky high; it aims to raise output from 6m tonnes per annum (mtpa) to 25mtpa by 2016. Current management have built the business into Australia’s largest independent coal miner and have an excellent reputation so those ambitions have some credibility. Whitehaven is on our radar but, with the share price up 7% since 24 May 12 (Hold – $3.93), we’re sticking with HOLD for now.