For a host of reasons, this is another silly post from you -...

For a host of reasons, this is another silly post from you - wherein you compare WHC to FMG over the past 10 years - because it involves looking in the rear-view mirror which contains circumstances that were vastly different a decade ago to what they are today.

So, your 2014 starting base is meaningless: A decade ago, FGM was a juvenile company and in production ramp up mode (shipments in 2011, 2012, 2013 and 2014 were, respectively, 41 mt, 58mt, 81mt, and 124mt. By 2016 it had reached 170mt, after which it basically plateaued (~1.3% CAGR since then).

Secondly, after the watershed transaction (and on any objective measure it is indeed a watershed) to buy the world's preeminent coking coal assets from a rather clueless vendor (BHP), the WHC of today is a totally different beast to the WHC whose legacy earnings you are referencing.

Third, there's fundamental change in the industry structure: The Chinese industrial and infrastructure boom that started in around 2008/09 induced significant investment in additional global coal capacity in 2010/11/12 which resulted in an oversupplied market for much of the 2010s. Since then, climate anxiety has severely constrained investment in new coal mines, and resulted in significant industry consolidation.

Manifestation of this structural change is that, at the current low point in the global industrial production cycle, the iron ore price is, understandably, a lot lower than its previous cycle peak, while coal prices are today higher than the previous cycle peak (forget about what happened to coal in 2021; that's not relevant because it reflects an abnormal set of circumstances).

So to compare what happened to FMG vs WHC over the past decade is a fool's errand, effectively an exercise of comparing an apple with an orange.

But even if you argue that FMG's earnings have been more ...um... "solid" than WHC's, that isn't reflected in the investment performances of the two stocks, with the annualised returns being similar over 5- and 10-year timeframes, and WHC has outperformed FMG by far over any investment timeframe over the past 3 years:



That's because, instead of viewing things through an irrelevant legacy lens, what is required is to look prospectively and to do so requires analysing the financial track record of the pre-eminent coking coal business that WHC just bought which will, going forward, represent around 80% of WHC's earnings.

From the BHP Annual Reports, commencing with your starting point of 2014 the EBITDA profile of acquired coking coal assets was as follows:



So, like all commodity businesses, earnings are typically cyclical, but the average over that period is US$2.5bn.

In acquiring that US$2.5bn pa through-the-cycle EBITDA, WHC paid US$3.2bn, so an EV/EBITDA multiple of a mere 1.3x.
(Heck, even if one ignores the freakish 2022 outlier, the average EBITDA for the other years is US$2.2bn, implying an acquisition multiple of 1.5x)

Viewed another way, and taking your 2014 starting point, if BHP's Queensland coal business was a listed company, and one bought it based on say 7x or 8x EV/EBITDA at that 2014 starting point, the cumulative EBITDA generated over the ensuing decade would have totalled 3.5x your purchase consideration.

Doing the same exercise for FMG shows cumulative EBITDA return multiple that is not even 2.0 times.

That's the apples-with-apples comparison.

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