Corruption and coal

AUSTRALIAN coal companies are far from alone in being hit by falling demand and low prices.

Staff Reporter

This is a fact Hogsback discovered last week when looking at the two biggest coal fights in the world, with the potential to have a lasting effect on the international coal market.

In the US there is the presidential election race, and coal has emerged as a key issue in so-called swing states. Over there, President Barack Obama is routinely called anti-coal, while rival Mitt Romney is said to support expansion of the industry.

If the political pressures on US coal are not sufficiently interesting then shift focus to Indonesia where a bare-knuckle brawl has broken out in one of that country’s biggest coal companies, Bumi Resources, with the alarming potential for religious rivalries to get dragged in should the name-calling get worse.

For Australian coal companies, neither the US nor Indonesian coal clashes might appear particularly relevant. That is until the potential for both to spill into the global coal trade is considered.

At Bumi, the end result of a fight between major shareholders could lead to a collapse of the company and suspension of mining until allegations of corruption are sorted.

Unlikely as that might sound, the Bumi dispute is already taking on an international dimension as European investors in the business call for a high-powered investigation into missing money and some Indonesian observers have started to play the religious card because of the Jewish background of Nathaniel Rothschild, the London-based co-founder of Bumi.

Letters to newspapers in Jakarta have included alarming threats against western institutions in Indonesia including churches, though how the link is drawn between coal mining and religion is a mystery to The Hog.

Whatever the cause of the curious logic being aired in the Bumi dispute, it certainly qualifies for one of the most interesting disputes affecting a coal company anywhere in the world.

Precisely what has happened in Indonesia might one day be revealed by the law firm appointed by Bumi PLC, the London-listed company that partners PT Bumi Resources, though the central issue appears to be money.

According to reports coming out of Jakarta a whistle-blower inside Bumi Resources got word to London about millions of dollars sent to the Yemen, allegedly to fund an oil exploration project, though very little appears to have been spent actually drilling.

For investors in Bumi PLC, the missing funds are the last straw in what has been a painful experience over the past 18 months. Their company’s shares have been hit by the falling coal price and a war of words between the pro-Rothschild forces on the company’s board and forces aligned with one of Indonesia’s richest families, the Bakries, on the other.

The net result is a stock that once traded on the London Stock Exchange at 14 pounds a share is trading at about 1.50 pounds. That is enough to have any investor look for a scapegoat, no matter what damage it does to the operations of the business because most of the pain has already been felt in the share price.

In the US presidential election, coal moved back to centre stage this week when workers at the Century mine in Ohio found themselves caught in a political point-scoring storm after they appeared on a platform behind Romney.

Dressed in working gear, despite it later being revealed the mine was closed for Romney’s visit, the miners were lined up behind a slogan reading “Coal country stands with Mitt”

Not everyone in the picture was happy with being used for political purposes with claims quickly emerging that the workers were ordered onto the stage by management, providing Obama the ammunition for a stinging rebuke that Romney had used the men as “advertising props”

What US political antics may mean for the Australian coal industry is a question that had The Hog thinking, and he reckons that if the presidential election goes the way it seems to be going then it is not good news.

Obama appears to be heading for a win, and if that is the case he will continue to apply pressure on the power-generation industry to favour fuel sources other than coal, with gas, wind and solar the preferred choices.

That means more US coal will be heading overseas as mine owners chase markets to replace what they lose at home.

In both cases, Bumi in Indonesia and coal as a political prop in the US, the underlying issue is the pressure being placed on the industry by falling prices.

Australia’s coal industry is yet to have a corruption scandal of the scale engulfing Bumi, or an election with coal centre-stage. But if prices stay low and there are more pit closures, it may not be long before we get a taste of what’s happening overseas.

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