Whitehaven looks to alternative lenders for BHP coal deal

Mainstream banks commonly won’t offer loans to coal miners, regardless of whether the finance is for metallurgical coal used to make steel or the more out-of-favour thermal variety.

Alternative lenders are expected to turn up in the mix to fund a highly anticipated acquisition by Whitehaven Coal of BHP’s two Queensland mines Daunia and Blackwater.

While it’s been all quiet on the BHP and Whitehaven front since final bids were re-submitted on the coal mines last month, sources say that Whitehaven continues to be busy at work on an acquisition in the background as it remains the contest front runner.

Holding up an announcement is believed to be the time taken organising funding.

Sources have suggested that Whitehaven initially courted mainstream banks to fund what is expected to be a $US3.5bn purchase.

But now, it’s going cap in hand to alternative lenders.

Mainstream banks commonly won’t offer loans to coal miners, regardless of whether the finance is for metallurgical coal used to make steel or the more out-of-favour thermal variety, as they become more conscious about climate change concerns.

This could mean that when a deal is finally announced, as expected, groups like Varde Partners, Davidson Kempner Capital Management, Farallon Capital or Washington H. Soul Pattinson could be in the picture.

Yet debt from alternative lenders comes at a higher price, so the big question is whether Whitehaven can still make the numbers work.

The mooted acquisition of the two mines is controversial, with hedge fund shareholder Bell Rock Capital, which has less than 5 per cent of the stock, opposing an acquisition with the preference of Whitehaven returning its cash pile to investors.

Bell Rock is urging shareholders to vote against the re-election of directors Nicole Brooke, Wallis Graham and Raymond Zage at the company’s October 26 annual general meeting on the back of a fall in shareholder returns.

Whitehaven Coal is understood to have pitched its bid for BHP’s Daunia and Blackwater coking coal assets at $US3.5bn.

The speculated bid is slightly higher than the $US3.3bn valuation ascribed to the assets by UBS in a research note issued in mid-September.

Other potential buyers for the assets, which are owned by BHP in a joint venture with Mitsubishi Development Corp, include Yancoal, Stanmore Resources, BUMA Australia and Peabody Energy.

Whitehaven has confirmed previously it is bidding for both of the mines in Queensland’s Bowen Basin, with more than $2bn of cash on its balance sheet.

The coal miner has also told shareholders it would only acquire the assets if a deal did not dilute its earnings.

The deal offered to BHP is understood to be made up of $US1.2-$US1.5bn in debt, with a $US2bn upfront payment and $US1.5bn deferred.

UBS has ascribed a value of $US2.5bn to Blackwater and $US800m to Daunia

Macquarie Capital is running the sale process.