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Friday, January 27, 2012

Walter Energy may lure buyers willing to bet on a recovery in coal prices

Friday, 27 Jan 2012

Bloomberg reported that Walter Energy Inc may finally lure buyers willing to bet on a recovery in coal prices with the industry's cheapest stock.

According to data compiled by Bloomberg, after losing almost half its value in the past year, the producer of steelmaking coal sold for 9.3 times earnings this week. That was less than any North American coal mining company with USD 1 billion in market capitalization. The slide also drove down the value of Walter Energy to 1.7 times its net assets this month, the lowest since the last bear market in US equities.

While a surge in coal prices last year led to the biggest wave of coal deals, most acquirers were left with losses as demand for the commodity collapsed. Walter Energy, which bought Western Coal Corporation for USD 5.3 billion in April, is an attractive target because it produces high grade steelmaking coal. A buyer could spend double Walter Energy’s closing price of USD 67.54 a share yesterday and still get the company for less relative to earnings than any coal takeover in the past year.

Mr J Christopher Haberlin analyst at Davenport & Co said that "Now is the opportune time for a buyer to potentially start looking at them. It's some of the best coal in the world and it's what steelmakers want. If somebody did make a run at Walter here, certainly they could take Walter out a price much lower than where that valuation may have been."

Walter Energy may attract interest from BHP Billiton Limited, Anglo American Plc or ArcelorMittal, and could command as much as USD 120 a share in an acquisition.

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