Coal news and updates

For a gauge of just how far prices of Australian coal assets have fallen in the past few years look no further than Wesfarmers Ltd.WES.AU -0.39%’s latest acquisition.

 

The Australian conglomerate—better known for its ownership of the Coles supermarket chain—said it’s paying 70 million Australian dollars (US$61 million) to U.S. miner Peabody Energy Corp.BTU +0.73% to take over ownership of a large coal deposit in the eastern state of Queensland.

 

Deals for coal assets are thin on the ground right now as the market for thermal coal used in power generation and coking coal used in steelmaking is challenged by oversupply. Rio TintoRIO.LN +1.45% PLC has been seeking buyers for a minority stake in its Coal & Allied unit, which owns several coal mines in New South Wales state, for several months while a string of smaller companies continue to court wary investors as cash piles run low.

 

Contrast that with the last time the asset that Wesfarmers is buying, known as MDL 162, changed hands.

 

In August 2010, Macarthur Coal Ltd. unveiled a deal to buy a 90% stake in the deposit for more than A$334 million in a deal that led to it tapping major shareholders like China’s Citic Resources Ltd.1205.HK -1.02% for more equity. Peabody, the largest U.S. coal producer, bought Macarthur Coal for A$4.9 billion around a year later, not long before coal prices began to tumble.

 

Wesfarmers Chief Executive Richard Goyder has made no secret of his desire to challenge prevailing sentiment, and buy assets when prices are low. The rationale for purchasing MDL 162 is to secure additional coal reserves that could be processed at its adjacent Curragh mine.

 

“We bought our Curragh mine right at the bottom of the cycle and it has been a phenomenal investment, so we are quite happy to be countercyclical if an opportunity arises,” Mr. Goyder told The Wall Street Journal last month.

 

MDL 162 has a total coal resource of 255 million tons, which could be mined and put through Wesfarmers’s coal handling and preparation plants at Curragh.

 

 

Source: http://blogs.wsj.com/