Rinehart’s coal cash arrived in a lump last year when she sold a majority stake in her Galilee Basin project in Queensland to India’s GVK group for a handy $1.2 billion. That was a handy boost to the $20 billion fortune of Australia’s richest person, and one of the world’s richest women.
At the time, Rinehart was criticised for selling too soon because conventional wisdom said the outlook for coal was bright and the only way was up for prices.
The woman who The Hog suspects believes in the investment advice contained in one of Frank Sinatra’s better-known songs thumbed her nose at outside comments. Instead she pocketed the $1.2 billion while humming “I did it my way”
As everyone in the coal business now knows that was a smart decision because the price of coal has not gone up. It has gone down and Rinehart’s sale ought to be recognised as one of the better moves made by any investor in the industry.
The same cannot be said for people with a much more refined coal-pedigree. That is either because they missed the chance to take some money off the table ahead of the price slump, or because they are buying more – or remain hopeful of funding a big coal development at a time of low prices and nervous bankers.
Top of the “missed timing” list is the board of New Hope Corporation. It considered following in Rinehart’s footsteps when it called for takeover bids last year, rejected everything, and duly watched the share price slump from a high of $6.41 to its latest level of $3.97. That is a 38% fall in 10 months.
Other coal stocks have fallen further as the world price for thermal coal in particular slumps under the weight of a glutted market caused by Europe’s financial crisis, China’s slowdown, and increased US exports prompted by that country enjoying cheap gas.
What makes Rinehart’s exit look even better, and New Hope’s non-exit look even worse, is the latest outlook for coal from the world’s biggest non-government producer, Peabody Energy.
In its third quarter production report the US-based miner said output and profits were sliding under the pressure of lower prices and rising costs. One of its biggest problems areas was Australia where cost pressures, including the carbon tax, could lead to mine closures.
Peabody chief financial officer Mike Crew said a likely $100 million fall in profit for the September quarter reflected expectations for continued Australian challenges, including “performance at contractor-operated mines, a longwall move, lower thermal coal pricing, a temporary shift in the mix of metallurgical coal and the introduction of the carbon tax”
His boss, Peabody president Greg Boyce, delivered the mine closure warning by adding: “potentially, some of the very high-end, cost-curve, mines out of Australia will begin to cut back”
Most damage to Peabody’s outlook is the 30% fall in the price of thermal coal. However, an unspoken problem for the company is that it simply paid too much for its Australian flagship business, Macarthur Coal, in last year’s $5 billion acquisition.
That importance of that observation about Peabody over-paying for Macarthur is compounded by the fact the US firm completed its purchase at roughly the same time Rinehart was selling control of her Galilee project to India’s GVK.
Interesting as it is to look back at the timing of deals and to wonder how a woman with limited knowledge of coal could get it right, and the world’s biggest private coal producer get it wrong, there is a chance of a history repeating itself as Nathan Tinkler forges ahead with his high-priced proposal to privatise Whitehaven Coal.
Because The Hog had a shot at Nathan last week with a cheeky suggestion that Nathan had misplaced $1.3 billion – which was the gap between his proposed $5.25 billion and the $3.95 billion stock market value of Whitehaven – it would be unfair to take a second shot.
However, in the name of accurate reporting it ought to be pointed out that Nathan’s value gap over the past week has widened to $1.5 billion thanks to the continued fall of Whitehaven’s share price.
Meanwhile, in the corner office of her West Perth building, Rinehart has ended her imitation of Sinatra and switched to a humming The Gambler, a Kenny Rogers classic that includes these words of advice: “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run”
