RPT-BREAKINGVIEWS-Whitehaven should give Tinkler cautious welcome

Tue Jul 17, 2012 10:52pm BST

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(Repeats item first published late on Tuesday; no change to text)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Kevin Allison

LONDON, July 17 (Reuters Breakingviews) - Nathan Tinkler takes opportunities when he sees them. Eight months after Whitehaven Coal (WHC.AX) agreed to buy his Aston Resources and Boardwalk Resources for $2.3 billion, the 36-year-old electrician-turned-mining magnate is turning the tables and offering to take the Australian coal producer private. Some Whitehaven shareholders are joining his bid consortium, which will offer the remaining investors $5.20 a share, a 50 percent premium, to sell out. But Tinkler would fund the offer by gearing up Whitehaven’s balance sheet. Leveraging into a fading commodities boom looks ambitious even for a man who so far has played the mining boom to perfection.

One of the few remaining independent Australian coal producers, Whitehaven has been punished by slumping demand for thermal coal in China. Coal used in power plants accounts for about 80 percent of the miner’s earnings, according to Nomura. Australian spot prices have slipped 25 percent since January. Whitehaven’s shares have fallen more than 30 percent.

Tinkler received 21.4 percent of Whitehaven in the Aston/Boardwalk deal. Some 48.3 percent of shares already support his pitch, which is structured as a scheme of arrangement. But the market has doubtful he can assembled the financing to execute his offer: Whitehaven shares only rose 18 percent to A$4.07 after the deal was announced.

There is some logic to what Tinkler is up to. Whitehaven’s earnings mix is set to shift away from thermal coal towards more attractive coking coal as new growth projects ramp up. The most important of these, the Maules Creek open pit mine, was the core of the business that Tinkler sold to Whitehaven. Few if any people understand the asset better. Tinkler clearly thinks he’s more capable of delivering the project than existing management. His deal gives selling shareholders certainty in return for his assuming the upside risk on the project. That certainty is especially valuable when earnings are weak and capital costs are biting.

In purely financial terms, it’s hard to argue the price he’s offering isn’t recommendable, even if it is 23 percent below the company’s 2011’s post-crisis peak. Still, the independent Whitehaven directors have other considerations before they can recommend the offer: firstly, they need to be sure Tinkler really can deliver the goods. Since he is offering cash, it may not seem to be their concern that Tinkler’s success has coincided with a super-cycle that now appears to be fading. But they have a broader responsibility to be reasonably satisfied the company can survive his financial engineering.

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CONTEXT NEWS

- A group of investors led by 36-year-old Australian billionaire Nathan Tinkler has offered $5.3 billion to take Whitehaven Coal private. The offer values Australia’s second-biggest independent coal producer at $A5.20 per share, a 50 percent premium to Friday’s closing price.

- The bid, which is conditional on financing and due diligence, came just eight months after Whitehaven agreed to buy Tinkler’s Aston Resources and Boardwalk Resources for $2.3 billion. That all-stock deal left the former electrician holding 21.4 percent of Whitehaven’s shares. Tinkler’s offer for Whitehaven came a month after his holding company first floated a proposal to buy the rest of the company.

- Whitehaven said shareholders owning just over 48 percent of its shares had indicated their support for Tinkler’s bid, which was announced after the market closed on Friday. Big banks including JPMorgan, UBS and Barclays provided conditional letters of support for the deal.

- Reuters: Australia's Whitehaven shares jump on $5.3 bln Tinkler bid [ID:nL4E8IG04Q] - For previous columns by the author, Reuters customers can click on [ALLISON/]

(Editing by Chris Hughes and David Evans)

((kevin.allison@thomsonreuters.com)) Keywords: BREAKINGVIEWS WHITEHAVEN/

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