Coking coal’s future bright: EMR Capital
The new owner of one of the nation’s biggest underground coalmines believes there is a ‘bright future’ for coking coal.
The new owner of one of the nation’s biggest underground coalmines believes there is a “bright future” for coking coal, despite the energy source being unfashionable among some sections of society, as emerging economies and global powers such as China and Japan need the commodity to fuel steel production.
EMR Capital yesterday won a $US2.5 billion ($3.2bn) bidding battle for Rio Tinto’s Kestrel coalmine in Queensland’s Bowen Basin.
EMR’s chief executive Jason Cheng told The Australian that investors would continue to embrace coal as an investment, especially mines that had good access to the sea backed up by transport infrastructure.
“We believe coking coal has a bright future because if you look at the GDP growth of all the emerging economies that’s really a proxy for steel, which then is a proxy for coking coal,’’ Mr Cheng said.
Coal would help nations drag their populations out of poverty and reach for higher standards of living, he said.
“The reality is the capital markets cannot simply walk away from hard coking coal, which is needed to create steel, which is needed to support GDP growth and rising incomes and rising lifestyles, so that can’t change overnight,” Mr Cheng said.
“There is no replacement for coking coal.
“We see demand increasing.
“We don’t see all investors walking away from hard coking coal.
“We still see a majority of investors over a majority of time supporting it.’’
Rio has now divested all its global coal assets after agreeing to sell its 80 per cent stake in Kestrel to a consortium comprising private equity manager EMR Capital and Indonesian coal company Adaro Energy.
It is believed only two bidding parties made it to the final round, the other being South32. The deal marks EMR’s biggest investment to date. Its executive chairman is former Oxiana founder and boss Owen Hegarty.
The sale leaves Rio’s coffers bulging with more than $US4.15bn after last week agreeing to sell the Hail Creek and Valeria coal projects in Queensland to Glencore for $US1.7bn.
In 2017 the Kestrel mine generated earnings before interest, taxes, depreciation and amortisation of $US341 million, and pre-tax profit of $US258m, Rio Tinto said.
“The sale of Kestrel, together with the announced divestments of Hail Creek and our undeveloped coal projects, delivers exceptional value to our shareholders and will leave our portfolio stronger and more focused on delivering the highest returns through targeted allocation of capital,” said Rio chief executive Jean-Sebastien Jacques.
Rio said the funds generated would be used for corporate purposes.
The company forecasts a tax charge of $US500m in Australia, depending on the final proceeds, which will take working capital adjustments into account.
Last week in Melbourne Mr Jacques said the pivot out of coal was part of a wider strategy to invest in other commodities.
“Today when I look at the pipeline of projects, I’ve got much better options for investment in iron ore, copper and bauxite and aluminium than I have in coal and therefore you have to make choices. That’s what it is about,” Mr Jacques said.
Mr Cheng said the Kestrel coalmine in Queensland was highly prized due to its strong transport links to the coast and solid infrastructure.
“Not only do you have the highest-quality coking coal but you have all the infrastructure built up, so that’s why we are attracted to the Bowen Basin because there you have the infrastructure, power, rail, port, roads, people, the government support — so you have everything.’’
Shares in Rio fell 69c to $73.47.