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Competition hots up for Australian coal
- 12 years ago (2012-01-26)
- Junior Isles
US coal giant Peabody Energy has hired UBS to assist in finding a buyer for its Australian Wilkie Creek coal mine, a move likely to kindle interest from several Asian nations, vying to secure coal supply for their growing fleet of power plants.
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Peabody said “the decision to sell Wilkie Creek, which produces more than 2 million tonnes of thermal coal annually, was taken in the final three months of last year following its $4.9 billion takeover of Macarthur Coal”.
Wilkie Creek coal is currently railed to port in Brisbane and then exported to Japan, Taiwan and South Korea for use in power generation. However, the mine’s location in the Surat Basin of southeast Queensland means it lies outside Peabody’s core operations in the Bowen Basin, which now include Macarthur’s producing mines.
Rapid industrialisation in China and India is driving heavy investment in coal-fired power generation, buttressing thermal coal prices in the Asia-Pacific region and boosting valuations of mines in countries like Australia and Indonesia, which account for much of the world’s seaborne coal trade.
Australia is the world’s largest coal exporter by volume, with vast reserves of thermal coal burnt to generate electricity and coking coal used to make steel. These reserves have made Australia a favoured destination for foreign investment, despite the federal government taxing profits from coal mining heavily and putting an additional price tag on emitted carbon.
A reliance on coal imports has led Korean, Indian and Chinese companies to scour the Asia-Pacific region for coal deposits that can be developed for export, although competition is intensifying with Western miners also looking to buy resources that can be sold at higher margins than in traditional markets like North America.
Last year, resources deals accounted for 44 per cent of the $US65.7 billion worth of inbound merger and acquisition activity to Australia, data from Dealogic shows. Coal companies featured among the biggest deals, including Peabody’s takeover of Macarthur Coal and a joint offer by Rio Tinto and Mitsubishi to take full control of Coal & Allied Industries, which valued Australia’s sixth-largest coal miner by output at $10.6 billion.
Chinese interest – China overtook Japan as the world’s largest coal importer last year – has also strengthened, with Hong Kong-listed Yanzhou Coal Mining offering to combine most of its Queensland and New South Wales assets with those of Gloucester Coal in a deal that values the Australian miner at $2.2 billion.