Battle of the giants

NATHAN Tinkler versus the world! It might sound like the billing for a boxing match but from what Hogsback has seen over the past few weeks it is actually a reasonable description of the most interesting competition in today’s coal world.

Staff Reporter

In the blue corner, weighing in at a rather substantial amount is the self-made champion of the Australian coal sector and habitual deal maker, Nathan Tinkler.

In the red corner, weighing in at a bit more than Tinkler is the rest of the world, a place plagued by uncertainty, sluggish growth and what appears to be a large surplus of thermal coal.

More about the coal glut later.

For now it is worth thinking about the latest deal proposed by Tinkler – the privatisation of Whitehaven Coal, a business that only yesterday (or so it seems) acquired Tinkler’s flagship, Aston Resources.

The reasoning behind the acquisition of Whitehaven, a proposal that has received the backing of Hong Kong-based Noble Group and other long-term supporters of Tinkler, is simplicity itself – it looks cheap.

Over the past 12 months, Whitehaven shares came close to halving, falling from a peak of $A6.19 to a low on June 4 of $3.53.

That was eight days before Tinkler approached Whitehaven about a possible privatisation.

The share price has picked up since the privatisation proposal was floated and the last time The Hog looked, the stock was trading at around $4.47, which values Whitehaven at $4.5 billion – roughly $1 billion more than the low point.

Dollars, not tonnes, are the key to what is happening at Whitehaven.

While direct comparisons are difficult because of the multiple takeover bids involving Aston, Whitehaven and Coalworks, it is important to look at everything through a financial prism – particularly the prism Tinkler has to see through.

In his case the arithmetic looks a little like this.

After merging Aston he walked away with a 21.4% stake in Whitehaven, equivalent to around 214 million shares – worth $1.32 billion when the stock was at its peak price of $6.19 but $755 million when it was at its lowest.

In other words – and these are ballpark numbers – Tinkler woke up on June 5, the day after Whitehaven sank to its low point and found himself about $565 million poorer than when the stock was at its peak.

Also, somewhat alarmingly, he was no longer a billionaire and therefore no longer a member of that exclusive club, as tracked by magazines such as BRW and Forbes.

Undoubtedly Tinkler would have dismissed his removal from the billionaire’s list as utterly irrelevant and there is no doubt he is right. The lists of rich people are nothing more than best guesses by outside observers, with a very large inbuilt error factor.

However, one of the amusing reactions The Hog has observed over many years of involvement with compiling rich lists is there are more complaints from people being taken off than from people being added.

Restoring value – corporate and personal – was a major factor behind the surprise privatisation proposal from Tinkler and associates.

Whether the proposal succeeds is another matter entirely and that is before there is any discussion about what may be defined as success.

On one level, Tinkler may regard the other shareholders of Whitehaven accepting his proposed bid as a success.

On another level there is an argument that says now may be a good time to take some money off the coal table.

It takes us back to the question of the coal price and growing stockpiles of thermal coal around the world.

The problems confronting coal, especially thermal coal, have been well documented.

Global growth is slowing, driving down demand for electricity.

Rising natural gas production in the US is forcing coal from that country onto the world market and governments are layering ever higher taxes on the industry, along with tighter environmental regulations.

Tinkler obviously regards the issues as speed bumps on the coal road and perhaps he is right.

There are arguments to support continued strong demand for coal, with a price rebound inevitable once Europe deals with its recession and China returns to rapid growth.

On that basis, Tinkler may be chasing a bargain basement buy and the best of luck to him because risk-takers deserve to be rewarded.

It leaves two questions, which are: how long will it take for Tinkler to earn his reward and reclaim his position as a billionaire?; and will the privatisation of Whitehaven be Tinkler’s last dashing corporate deal?

Not long is The Hog’ answer to the billionaire question and definitely not the last deal is the answer to the second because Tinkler is a man who will not stand still.

Deal making, more so than coal mining, is his reason for existence and that makes him a man to watch.