Hogsback contracts a dose of xenophobia

IT’S getting awfully cheap and easy to organise a convention of Australian-owned coal-mining companies. All that’s needed is for Hogsback to rent a small hotel room or one of those old red telephone boxes that disappeared with the invention of the mobile phone.

Tim Treadgold

By this time next year, given the level of foreign interest in Australian coal, it might not even be necessary to find a phone box because there will not be anybody eligible to attend.

Macarthur Coal’s capitulation to Peabody of the US was what triggered this depressing line of thought because the Queensland company had seemed to be the perfect Aussie miner, run by a larger-than-life, pub owning, risk-taker in the late Ken Talbot.

Before (and after) the Macarthur deal there was a long list of transactions involving the sale of coal assets to international interests, including Yanzhou’s acquisition of Felix, Noble buying control of Gloucester, Lanco Infratech’s purchase of Griffin Coal and Yanzhou snapping up the Premier mine of Wesfarmers.

This week’s decision of New Hope to put itself up for sale compounded the view that being an independent Australian coal miner almost qualified for the description of endangered species.

There is, obviously, no proof yet that New Hope will fall to a foreign raider but given Swiss-based mega miner Xstrata is said to top the list of potential bidders, then it seems reasonable to assume New Hope will go the same way as other small Australian coal stocks.

Given the high level of overseas interest in Australian coal it’s a fair bet the next owner of New Hope will be from China, the US or Europe – a thought which leads to these three provocative questions:

  • Is foreign investment in the Australian coal industry a bad thing?
  • What do the keen foreign buyers know that the willing local sellers do not?
  • Who’s making the correct decision, the buyers paying high prices today or the sellers who must reckon now is as good as it gets?

The deeply entrenched Aussie side of The Hog shares the view of many workers in the coal industry that full foreign ownership of coal mining in this country would be a bad thing.

On the other hand there is recognition that if a foreign buyer is willing to pay more for an asset than Australian investors then they are perfectly welcome to do so. After all, foreign buyers are not acquiring assets to close them. It is more likely they will expand the business being acquired, creating more jobs and paying more tax.

Without delving too deeply into a topic which invariably lurches towards a fear of foreigners (an affliction known as xenophobia), there is that financial question which always gets lost when emotions run high: who’s winning in the deals – the buyers or the sellers?

From the buyers perspective there is an obvious attraction of Australia. Firstly, because the country has high quality coal close to energy hungry markets in Asia but more importantly because it has an open door to most foreign investors.

Both of those issues must be underpinned by a view held by all the buyers that either the price of coal will continue rising or there are expansion opportunities or the Australian dollar will continue rising – making a deal tomorrow more expensive than today – or all three factors.

From the sellers perspective there must be a view the money being offered by the foreign buyers represents a chance to “cash out” at the best price in current conditions and there’s not much point in hanging around for something better, or to be asked to provide the capital to expand the business.

In a perfect world, the buyer and the seller are getting a fair deal.

But, since there is no such thing as a perfect world, it is interesting to think about whether the foreigners are paying too much given the Aussie dollar is up and coal prices are up. If both should decline, for whatever reason, there will be regrets.

As for the sellers taking the foreign cash, well they are probably doing the right thing under The Hog’ number one rule of investing: “a dollar in the hand is worth two in the pit”

There is another reason for saying foreign buyers are welcome and that is the capacity of the Australian mining industry to make fresh discoveries, develop new mines and create even more opportunities to expand the industry.

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