Anticipation grows for Whitehaven Blackwater selldown

Whitehaven Coal's Daunia mine in Queensland's Bowen Basin.

Whitehaven Coal investors will no doubt be eagerly awaiting news, when the company delivers its full-year result in August, about the selldown of a stake in its Blackwater coal mine.

There’s chatter in the market that the company is putting the finishing touches on a transaction document under which it offloads a stake to two separate Japanese groups at a price equating to a premium to what Whitehaven paid.

There has also been interest from at least one Indian group, but it has been behind the pace in terms of price.

The understanding is that the deal will likely be announced within two months, but has been slow moving due to the slower than usual pace of negotiations that come with doing business out of Japan.

Whitehaven has always wanted a group to buy a 20 per cent in the mine for a price multiple which is higher than what it paid for the asset last year.

There’s been some concern that due to Whitehaven Coal’s share price lagging, the value is far lower on a see-through value or when accounted for as part of its overall equity valuation.

Whitehaven Coal purchased the Blackwater coal mine in Queensland and the Daunia mine for a combined $6.4bn from BHP last year.

Talks have for some time been happening with suitors for a stake.

But Whitehaven’s market value is about $6.4bn and its share price $7.63 – not that far off what it was before the deal, even though the group has significantly increased its level of coal production.

When Whitehaven last year bought BHP’s Queensland-based Daunia and Blackwater coal mines, which produce metallurgical coal, the suggestion was Blackwater accounted for most of the value of the $US3.2bn deal – as much as $US2.5bn.

Whitehaven announced on April 2 that it had completed the acquisition of Daunia and Blackwater.

Chief executive Paul Flynn had earlier said the decision to acquire BHP’s Daunia and Blackwater mines would transform the company into a leading supplier of metallurgical coal for key export markets, where it would earn about 70 per cent of its revenue from export coal.

He said there had been strong interest in possible plans to sell a 20 per cent stake in the Blackwater mine to global steelmakers as strategic joint venture partners, adding that a high price was likely to be paid for partial ownership of the asset.

As part of the transaction, Whitehaven paid $US2.1bn upfront, less a $US100m deposit.

Deferred consideration of $US500m, $US500m and $US100m was payable on the first, second and third anniversaries of the completion date.

Contingent payments of up to $US900m comprised annual payments dependent on realised pricing exceeding agreed thresholds.

Whitehaven reported a 58 per cent fall in revenue for the six months to December to $1.6bn and an 86 per cent decrease in net profit to $257.6m as coal prices fell from their giddy heights during the period.