Article – Anglo throws $84 million at Australian coal

4 February 2015
Peter Ker
Sydney Morning Herald
A British mining investor has paid $US65 million ($84 million) for exposure to Australian thermal coal, and says there is little risk of profits in the sector declining further.
While cautious about declaring the bottom in coal markets, royalty investor Anglo Pacific said recent changes in the oil price and the Australian dollar had made it a good time to pay $US65 million for a 1 per cent royalty on future revenues from Whitehaven Coal’s Narrabri thermal coal mine.
Narrabri produced 5.6 million tonnes of coal in the 2014 financial year and is expected to produce more than 6.5 million tonnes in the 2015 financial year.
Anglo Pacific chief executive Julian Treger said the royalty would have yielded more than $US5 million last year, and should yield about $8 million a year once the Narrabri mine is fully ramped up.
“We are not calling the bottom of the coal price because that is a difficult timing to be accurate on, but I think there is more risk to the upside than the downside for thermal coal,” he said.
“We think Whitehaven is a great operator and they should do well in this environment, whereas a lot of their peers will have higher mining costs going forward because of the age of their mines.”
Mr Treger said the royalty model was a de-risked way to get exposure to the mining sector and commodity prices.
“The virtue of the royalty model is that you take a piece of the top line and you don’t get exposed to operational issues,” he said.
“Higher costs and capex blowouts don’t affect you, you really are interested in ensuring the mine continues to operate, and as long as it operates you get some income.”
The acquisition will not significantly affect Whitehaven, given the royalty already existed and was purchased from a seller who Mr Treger declined to name.
Prices for thermal coal exported through Newcastle in NSW averaged $US61.65 last week.
While prices for the commodity have halved since 2011, they have only fallen 5.5 per cent over the past year.
Anglo Pacific has 21 mining royalties around the world, including in Australia on Rio Tinto’s Kestrel coking coal mine in Queensland, the Four Mile Uranium mine in South Australia and some undeveloped iron ore assets in the Pilbara owned by BHP Billiton.
Whitehaven mines high-quality coal at Gunnedah.
Courtesy of the Sydney Morning Herald