October 15, 2011
BHP Billiton, the world's biggest mining company, is considering a $US6 billion ($5.86bn) takeover of a US coal producer to support its view that supply of the sought-after commodity will be scarcer than iron ore in the next decade.
Speculation from London yesterday suggested that the global major, fresh from receiving approval this week for its $30bn Olympic Dam copper and uranium expansion in South Australia, was circling Walter Energy, the world's largest producer of coal used for steelmaking.
The Birmingham, Alabama-based company was put in play in July, when activist hedge fund Audley Capital wrote to the board calling for it to seek a buyer because it lacked the leadership to take advantage of an "unprecedented market opportunity" after coal prices jumped.
Walter, whose share price has been cut in half since April, rebounded strongly on the takeover speculation. It jumped 13 per cent in New York to $US75.22 -- the biggest gain in five weeks.
With Walter Energy's market capitalised at about $US4.7bn, a bid of about $US6bn could be the target in any takeover move, given that analysts expect a 30 per cent bid premium.
Walter, which operates mines in Alabama, West Virginia, British Columbia and Wales, acquired Vancouver-based Western Coal in April for $C5.3bn, boosting its reach into Canada.
BHP chief executive Marius Kloppers is expected to be in Canada early next week, after the company's annual general meeting in London, where he is to meet Saskatchewan Premier Brad Wall.
While his visit is said to be an attempt to ease tensions between the miner and the government -- after BHP's $US39bn bid for Potash Corporation of Saskatchewan was killed off earlier this year because of political opposition to the deal -- it is also timely because of the bid speculation.
The global major's successful acquisitions this year were in shale gas in the US through a $US12.1bn bid for Petrohawk -- the miner's biggest acquisition -- and the $US4.75bn purchase of Chesapeake Energy's Arkansas shale ground.
But with the company tipping coal demand to increase in a supply-constrained market, its attention could now be turning to the steelmaking commodity.
BHP's chief executive of ferrous and coal, Marcus Randolph, said the company expected coking coal to be scarcer than iron ore over the next decade.
"We are more bearish about iron ore than coking coal," Mr Randolph said during the annual World Steel Association conference in Paris last week.
"Between now and 2020 there is going to be a lot more iron ore supply coming into the market than coking coal, and our expectation is that, of the two, the scarcer over that period of time will be coking coal."
One analyst said while it would be a surprise if BHP did bid for Walter, the activity could not be ruled out. "Mr Kloppers' acquisition agenda has always been assets that are large scale, low cost, easy to mine and a strong export market for the product. While this ticks all the boxes, it is not totally compelling," he said.
Rival bidders for Walter Energy could include Anglo American, Rio Tinto, Brazil's Vale and CSN. It was flagged early last month that Anglo American was considering a $US7.5bn bid for Walter.
Britain's Independent newspaper reported there was "vague speculation" that JPMorgan and Goldman Sachs had been called in as advisers to potential bidders.
BHP said it did not comment on market speculation.
(sourced The Australian)