Ann: Acquisition of Daunia and Blackwater mines announcement, page-50

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casajack

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19/10/23

12:33

Post #: 70425998
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Originally posted by Alejandro1: ↑

Goodbye cash and hello debt. This move weakens the balance sheet and makes the business even more susceptible to spot price gyrations. Do we all remember the close to $1B in debt that was on the balance sheet in 2020 and how close WHC came to insolvency because of it? Management has forgotten or is bored and needs some action. Now it's back, and higher than ever, with close to AU$1.5B in debt and a guesstimate of $45M to 90M of interest repayments per year for a 3% to 6% interest rate. But they could pay it off quickly with cashflow, or not, coal price is unpredictable.

EBIT from this acquisition can be anywhere from AU$700 to $1B per year for the first five years depending on spot price and cost of extraction. Is management just moving with the tide? When thermal was high, they focused on thermal, now that coking is in the spotlight, they make a huge decision with no shareholder approval to pivot.

With a $6.5B price tag, that's a PE ratio of 6 (at best) per year on investment, compare this with a current PE of 3. That is ignoring possible production disruptions or coking price declines. BHP definitely got a good deal! When is the best time to acquire coking coal assets? When the coking price is near historic highs apparently. Yes, the world needs coking coal going forward, but it needs it no more than it did in 2019 when prices for coking were US$150 to $200.

I like how they mention it will produce 17.3Mtpa over five years rather than the yearly figure of 3.5Mtpa, the bigger it looks the better. Or how they show cost in USD rather than AUD. The smaller the cost looks the better.

All in all, this is a good deal, but not at this time and not at this price. Softening of the market is needed to make a buy of share in WHCs acquisition profitable.

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I would have thought would be much, much higher than $700Mn - $1BN?

WHC Price at posting: $7.56 Sentiment: Hold Disclosure: Held
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Last $6.88		Change 0.040(0.58%)		Mkt cap ! $5.755B

Open	High	Low	Value	Volume
$6.86	$6.94	$6.85	$8.292M	1.202M

Buyers (Bids)

No.	Vol.	Price($)
31	10288	$6.87

Sellers (Offers)

Price($)	Vol.	No.
$6.88	11631	23

View Market Depth

No.	Vol.	Price($)
34	11206	6.870
31	21883	6.860
16	12087	6.850
12	16606	6.840
11	17447	6.830

Price($)	Vol.	No.
6.880	11932	23
6.890	30788	16
6.900	33228	14
6.910	23619	15
6.920	2324	6

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Ann: Acquisition of Daunia and Blackwater mines announcement, page-50

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