Mining Journal > Finance > Whitehaven agrees to buy Tinkler assets for A$2.72 billion

Whitehaven Coal Ltd has agreed to buy billionaire Nathan Tinkler’s Australian mining assets for at least A$2.72 billion (US$2.77 billion) in stock, taking the value of coal deals this year to a record.

Whitehaven is paying A$10.85 a share for Tinkler’s publicly-traded Aston Resources Ltd, 11% more than its close on Dec 9. The 36-year-old will become Whitehaven’s biggest shareholder after also selling his closely-held exploration unit Boardwalk Resources Pty for at least A$500 million in shares, according to a statement today.

Buying Aston gives Whitehaven control of the Maules Creek steel-making coal project, which will more than double the company’s output by 2016. Rising demand for coal in China and India has pushed coal deals globally to a record US$37.4 billion this year, compared with US$36.7 billion last year.

“There is a certain amount of logic putting the two companies together,” Neil Boyd-Clark, an executive director at Arnhem Investment Management Pty in Sydney which manages A$3.5 billion in funds, said by phone. “China absolutely dominates the market for both coking and thermal coal.”

Whitehaven fell 1.4% to A$5.74 at the close of Sydney trading. Aston, based in Brisbane, rose 1.4% to A$9.90.

Coal deals involving companies in Australia, the world’s biggest exporter of the fuel, total 80 this year worth a record US$11.4 billion, compared with last year’s US$9.44 billion, according to data compiled by Bloomberg. The biggest was Peabody Energy Corp’s US$4 billion takeover of Macarthur Coal Ltd in July. The average premium paid globally this year was 21%.

The Aston deal is priced at 2.14 times its asset value, according to data compiled by Bloomberg. That compares with a median total asset value multiple of 3.06 times across seven comparable coal deals in Australia, the data show.

Tinkler will own about 19% of Whitehaven after the deal, making him its largest shareholder. He won’t join the board of the new company, Whitehaven Managing Director Tony Haggarty said on a call with reporters.

Tinkler, with a fortune of A$1.13 billion according to Business Review Weekly magazine, is Australia’s youngest billionaire. He is a former electrician turned resources entrepreneur, with business interests including coal mining, rail and port infrastructure and horse racing.

“The deal makes sense from a logistical point of view, that’s the main driver behind it,” Peter Rudd, mining and resource analyst at Armytage Private Ltd in Melbourne, said by phone. “We’re likely to see more consolidation among smaller coal companies.”

Aston’s Maules Creek project, which it bought for A$480 million in February 2010 from Rio Tinto, is located within 20km of Whitehaven’s Narrabri North mine in New South Wales state.

Shareholders of Aston will receive 1.89 Whitehaven shares for each of theirs and current Whitehaven holders will receive a special 50 Australian cent dividend. Boardwalk shareholders will get an extra 34 million Whitehaven shares, worth A$198 million, based on Whitehaven’s Dec 9 closing price, on receipt of mining leases and environmental approvals at any two of Boardwalk’s five projects.

“By combining these assets we can ensure the most economic and sustainable development of the combined coal resources,”
Whitehaven’s Haggarty, who will manage the new company, said in the statement. Mark Vaile, non-executive deputy chairman of Aston, will become independent chairman.

The combined company may also be an attractive takeover target for Chinese or Indian companies seeking coal supply, Rudd said.

“When a company bulks up, it tends to become more attractive, especially for international parties,” he said.

Aston is being advised by UBS AG and Credit Suisse Group AG. Whitehaven is being advised by Goldman Sachs Australia Pty.
and Grant Samuel and Associates Pty.

Maules Creek is scheduled to start output in the second quarter of 2013, with production rising to more than 10Mt of semi-soft coking coal, used in steelmaking, from 2014 and will be using the same railroad and port as Whitehaven.

Whitehaven plans to boost production to almost 14Mt of coal in the year ending June 30, 2014, it said in an Oct 28 presentation. Whitehaven is forecast to earn net income of A$63 million in the six months to Dec 31, according to data compiled by Bloomberg.

Global seaborne demand for coking coal will grow by 5% annually to 2025, as Chinese steel output increases to about 1,100Mt, BHP Billiton, the biggest exporter, said Sept 30. Every tonne of crude steel needs about 600kg of metallurgical coal, BHP said at the time.

Dec 12 (Bloomberg)