Climate concerns turn up heat on coal consolidationBridget CarterFollow @BridgetCarterb

Some believe climate change concerns could lead to consolidation in the coal industry

• Bridget Carter

  DataRoom Editor

  @BridgetCarterb

  
• 9:00PM January 22, 2020
• 3 Comments

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Concerns about climate change could be better for investment bankers that count coal miners as clients than they think, with some predicting they could lead to consolidation in the industry.

One possibility is a merger between New Hope Coal and Whitehaven Coal.

While Whitehaven is not thought to be keen to merge with any party any time soon, its share price has been weaker of late, which could make it a target.

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Some believe the company could be attractive to New Hope, which is yet to land official government approval for its New Acland coal mine expansion in Queensland. Should approval not come through, it may look for growth opportunities elsewhere.

Washington H. Soul Pattinson owns about 49 per cent of New Hope and much of the miner’s future depends on the conglomerate’s plans.

New Hope owns the Bengalla coal mine, securing a full interest in the asset in 2018 when it bought the stake that it did not own from Wesfarmers, among several other Australian thermal and coking coal interests.

With coal out of favour, the share prices in the sector are not likely to recover anytime soon and, with demand for the commodity likely to decrease, some believe consolidation makes sense.

At the BKI Investment Company results briefing on Tuesday, Tom Millner, a director of New Hope and WHSP, said there was still strong demand for its commodities, including coal, with the low dollar being positive for exports.

The price of thermal coal and coking coal recovered around 2018 following the resources downturn, but has again fallen, with the price of thermal coal hardest hit at about $75 a tonne.

This could signal less investor appeal for coal groups.

For the 2019 financial year, New Hope reported a 3 per cent lift in its net profit before non-regular items of $268m. But the acquisition of a 40 per cent interest added significantly to Bengalla’s bottom line.

Other listed stocks in the sector include Coronado Global Resources, which was floated in 2018, and China-backed Yancoal.

Coronado’s market value has fallen to about $2bn and it is understood its adviser, Credit Suisse, has been offering stock around the market to fund managers as the initial private equity owner, Energy and Minerals Group, looks for a complete exit.

Some say a deal between Whitehaven and Coronado could make sense, given that the private equity owners want to sell out and Coronado’s performance has lagged since it listed. Whitehaven’s market value is currently $2.65bn.

Investors are expected to be increasingly wary of investing in coal in the coming months, particularly after comments by BlackRock chairman and chief executive Larry Fink, who said the $US7 trillion ($10 trillion) asset manager would exit all its investments, including thermal coal, as part of a response to rising climate change concerns.

Last year, Coronado offered guidance indicating that its earnings before interest, tax, depreciation and amortisation would fall below the bottom end of the downgraded guidance range of $US687m-$US737m it offered in September as metallurgical coal prices fell.

In a research note in November, Credit Suisse analysts said while the downgrade was disappointing, it was largely immaterial in the bigger picture when considering Coronado’s resilient balance sheet and its unchanged production growth plans at Curragh.

Bridget Carter

DataRoom Editor

Sydney

Bridget Carter has worked as a writer and editor for The Australian’s DataRoom column since it was launched in 2013, focusing on capital markets, mergers and acquisitions, private equity and investment banking.... Read more