BHP calls for revised coal bids on September 25

BHP is selling two Queensland coal mines, Daunia and Blackwater, through Macquarie Capital. Picture: iStock

BHP is asking the shortlisted bidders for its two Queensland coal mines on offer to resubmit their offers on September 25 after final bids landed last month.

DataRoom revealed earlier that suitors had until the end of the month to lock in their funding for a transaction and that Whitehaven was firming as the favourite to win the contest.

Left in the contest are Whitehaven, bidding for both assets, Peabody Energy bidding for the Daunia mine, BUMA bidding for the Blackwater mine and Stanmore Coal bidding for Daunia.

Sources in the market say that Stanmore Coal, which is sourcing debt to fund its bid with help from Grant Samuel, is believed to be the most conservative of the bidders when it comes to price.

UBS has put a $US2.5bn value on Blackwater, which the analysts say has a 50-year mine life, and a $US800m value on Daunia, which they believe has a 17-year mine life, with $US1bn of rehab liabilities on the former and $US250m of rehab liabilities on the latter.

Some Whitehaven Coal shareholders are warming to the prospect of the coal miner buying both BHP’s Daunia and Blackwater asset in a deal that may top $US3bn.

DataRoom first revealed Whitehaven was bidding for both mines on August 24, and the company confirmed this on Monday.

It also reiterated comments the company made while reporting its results last month that it had suspended its share buyback as it considered growth opportunities.

Initially, there had been reservation among some shareholders that the group would raise equity to buy the assets and may dilute its earnings, and hedge fund Bell Rock Capital remains on alert, although it owns less than 5 per cent of the stock.

Bell Rock said: “Given the enormous cash balance held by Whitehaven, it is easy to make a deal look earnings accretive but this approach can still be value destructive for shareholders, which is our strong concern.”

Whitehaven, which has recently been in talks with offshore groups about the bid as part of its international roadshow, is understood to have told investors that the company would only embark on an acquisition if it was earnings accretive and not dilutive.

Analysts at investment bank Citi estimated last month that the company was trading at a discount of about 20 per cent, which made it a good time to buy back stock.

Based on its assumptions, what this suggested is that Whitehaven needed to buy the BHP mines at a price the company believed was at a 20 per cent discount to what it believed the mines were truly worth to hold true to this statement about an earnings accretive deal.

If the price was right and funded with debt, not an equity raising, some suspect that the acquisition would more than double Whitehaven’s current earnings.

With a market value of about $5.5bn, more than $2.5bn of cash on its balance sheet, and analyst estimates it will generate $1.5bn of earnings before interest, tax, depreciation and amortisation this financial year, there are shareholders that use this to conclude that Whitehaven is trading at about two times its EBITDA to enterprise value.

Based on this, they believe Whitehaven would need to pay two times EBITDA or less for it to be earnings accretive.

Analysts at UBS say that the two BHP coal mines owned with Mitsubishi will sell for more than $US3.3bn and net BHP $US1.7bn in gross proceeds stripping out remediation cost liabilities.