Gujarat, Linc analysed

MINE Life senior resources analyst Gavin Wendt discusses what could happen to cash-strapped Gujarat NRE Coking Coal, as well as commenting on Linc Energy.

Blair Price

Gujarat NRE Coking Coal

The Illawarra Mercury reported that the Construction, Forestry, Mining and Energy Union had spent $A36,000 on $200 supermarket gift cards to help its Gujarat members, who have been unpaid for three weeks, buy essential items such as food and petrol.

Union, workforce and community hopes are based on Jindal Steel and Power relieving the situation by accepting a $66 million Gujarat share offer at a general meeting on October 16.

A recent statement by Gujarat executive chairman Arun Jagatramka has cast some doubt on how this meeting will play out.

“I am thankful to Jindal for providing partial funding in the last three months to sustain operations but I am baffled by their sudden withdrawal and absolute refusal suddenly to remit even the critical amount needed for timely payment of weekly wages,” he wrote.

“This was never expected by me and I am at a loss of words in this regard.

“My ‘hands are tied’ and all possible avenues of obtaining temporary assistance between now and the general meeting have closed.

“This is indeed a most regrettable outcome and I extend my sincere apologies to you all for any problems you might be experiencing.”

On the prospect that Jindal could not take up the offer and potentially try to acquire Gujarat’s assets more cheaply once it is in receivership, Wendt told ILN such a strategy was possible.

“They probably feel that in this environment there are not a lot of [potential] bidders and I think they’re right,” he said.

“There are not a lot of bidders for assets out there at the present time. So if you are a seller you are either being forced to accept a significantly lower price for your asset or you’re taking it off the market.”

Wendt says Jindal probably knows it is the only game in town.

“So they are prepared to be patient and see what develops. Given current market conditions, there is unlikely to be a queue of potential buyers out the door and around the corner.”

Gujarat’s creditors are also expected to be waiting on the outcome on October 16.

“I think they will keep their powder dry and see what eventuates,” Wendt said.

Linc Energy

In regards to Linc’s recent play to acquire the closed Blair Athol thermal coal mine from a Rio Tinto-led joint venture, Wendt suspects the relatively short operating life left in it wasn’t worth the hassle for Rio in maintaining it.

“For a company of a different size it could well prove to be a reasonable asset,” Wendt said.

“A lot depends on the coal price and the operating cost base.

“I think we are pretty close to the bottom but the consensus seems to be that thermal coal prices won’t improve for probably at least the next 12 months.”

Linc is yet to finalise the acquisition, with the payment amount unknown.

The analyst is also perplexed at Linc’s recent decision to delist from the Australian Securities Exchange and to list instead in Singapore.

“I can understand the theoretical reasons for doing it, trying to be close to Asian money and that sort of thing but I don’t know of too many Australian companies that have listed up there that have done particularly well,” he said.

“Those sorts of Asian investors in Hong Kong and Singapore, if they want to invest in Aussie companies they tend to like to do it through ASX listings anyhow and there hasn’t been any shortage of Asian money coming into Aussie-listed companies.

“I don’t think there is necessarily any advantage in having a Singapore listing over an ASX listing.”