Hogsback on the curious coal sell-off

WHY does it seem to Hogsback that it has suddenly become more fashionable to sell coal and other mining assets than to buy them?

Tim Treadgold

Evidence of coal-asset sales can be found in:

  • Wesfarmers starting the auction process for its small Premier thermal coal mine in Western Australia.
  • Whitehaven conducting a beauty parade of potential buyers of its assets.
  • Iron ore heiress Gina Rinehart inviting bids to either buy or partner in the Kevin’s Corner and Alpha coal deposits in Queensland’s Galilee Basin.
  • Glencore, the world’s biggest thermal coal trader, selling part of itself in a much talked about $10 billion float.
  • Analysts at investment bank Goldman Sachs advising that now is the time to be a seller of commodities rather than a buyer.

There are specific issues linked to each example, but there is also a common thread.

Wesfarmers, for example, has a much better coal asset than Premier at its Curragh mine in Queensland, and could undoubtedly expand its coal business on the east coast, whereas WA is a poor place for coal.

Whitehaven is all about a bunch of very smart investors, with long track records of trading in coal, knowing exactly when is the right time to take cash off the table.

Rinehart might not be an outright seller of coal assets but a seeker of joint venture partners to do all the heavy lifting of funding and operating her Queensland coal assets.

And the trader-owners of Glencore are a bit like the Whitehaven crew in knowing when is the best time to maximise profit from the capital locked up in a business.

Said quickly and that list might cause a reasonable person to assume that the best of the boom is behind us – which beleaguered federal Treasurer Wayne Swan also seems to be saying in his pre-budget softening-up campaign.

There is, however, a light on the hill – an analogy Wayne might enjoy as that was the famous rallying cry of one of his heroes, post-war prime minister Ben Chifley.

The light in this case is somewhat lower to the ground because what’s really happening is that the world is passing over a speed bump, and the boom will return.

The coal-asset sales mentioned form part of a peculiarly “western” view of the world, what might be called the short view – one which is based on taking short-term profits rather than playing the long game.

The eastern world of Asia is where you will find the long game as seen in the identity of most coal-asset buyers – they come from India, Thailand and China.

Even the Goldman Sachs view of commodities, which has been a dampener on the entire resources market, is split between a short and long view – sell now to avoid a speed bump in global growth, but get ready to buy back later when the fog, or a European and US slowdown, passes.

Some observers do not see the Goldman view as clearly as Hogsback. They see it as an attack on Glencore for not including it as a banker/broker to its $10 billion float.

One London observer remarked that Goldman was “raining on Glencore’s parade”. Another said the fact that the current owners of Glencore were selling provided all the evidence required that now was a bad time to buy.

Hogsback admits to a degree of confusion about what is really going on but it is significant that the assets being offered for sale are attracting buyers – which is surely a contradiction of the sell everything argument that Goldman seems to be saying and of how the Glencore management sell-down is being portrayed.

The only explanation for the commodities world today is that it depends on where you’re sitting.

In effect, coal is at the cross-roads of a two-speed world which is growing in the east and declining in the west – pretty much the reverse of what’s happening in Australia.

If you’re living in an Asian country, there are few signs of an economic slowdown.

If you’re living in the west, it is a case of managing the debt-induced slowdown and being confused by the carbon debate.

Hogsback’s view from the fence he is sitting on is that there are certain to be more eastern coal buyers than western coal sellers, and the sooner the sellers take their profits and bugger off the better for the industry.

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