This Coal Mine Valued At $630 Million In 2011 Just Sold For One Dollar
The following photos are from Australia’s Isaac Plains coking-coal mine.
Why is Isaac Plains relevant? Well, in 2011 during a tallness of a Australian mining boom, Japanese firm Sumitomo suspicion it has speckled a bargain, and a SMH reports, it approached Tony Poli, a owners of mid-tier miner Aquila Resources with an offer: it would buy a 50% interest in Isaac Plains, during a time Aquila’s usually producing spark mine, for $430 million.
Market participants suspicion Aquila’s interest competence fetch $300 million during best though Sumitomo was assured it would make a clever return, and offering roughly 50% above satisfactory value, generally given Brazil’s mythological mining association Vale owned a other 50% stake.
Net, a sum value of a Isaac Plains spark cave in 2011 was usually about $630 million.
It turns out Sumitomo was very, really wrong, and within a few years a essay was on a wall. In Sep 2014, Sumitomo and Vale shuttered a cave citing a downturn in a general spark market. Sumitomo pronounced it would also take a writedown value ¥30 billion ($11 million) on a Australian spark investments.
And as SMH tongue in cheekly adds, Isaac Plains was combined to a prolonged list of spark mines adult for sale – though during a price. That cost was finally suggested on Thursday: the elegant sum of $1.
Why a finish fall in cost of a spark mine? Simple: censure China.
As Bloomberg explains, “a unemployment in a cost of coking coal, used to make steel, to a decade low is forcing spark mines to tighten opposite a universe and bankrupting some producers. Alpha Natural Resources Inc., a biggest U.S. producer, skeleton to record for failure insurance in Virginia as shortly as Monday, pronounced 3 people with approach trust of a matter. It was valued during $7.3 billion in 2008.”
At a rise of a Chinese commodity bubble, that in spin resulted in a golden age for Australia’s mining companies, prolongation from Isaac Plains strike a rise outlay was 2.8 million tons a year, with spark sole to steelmakers in Japan, South Korea and Taiwan.
However, in a past year, with a ripping of a Chinese housing bubble, and a thespian cooling off of China’s shade banking system, a commodity direct of Chinese spook cities has left on hiatus, and so has a prolongation of spark mines such as Isaac Plains:
Coal’s passing is usually partial of a broader unemployment in commodity prices, that fell to a lowest in 13 years this month. The benchmark cost for coking spark exported from Australia has slumped 24 percent this year to $85.40 a ton on Friday, according to prices from Steel Business Briefing. The quarterly benchmark cost appearance during $330 a ton in 2011, according to Bloomberg Intelligence.
The shutting of Isaac Plains and a second spark cave in Australia tighten final year, Integra Coal, led to a 7.2 percent rebate in Vale’s sum spark outlay in a initial half of 2015. It took a $343 million writedown on a Australian spark assets, partial of sum impairments of $1.15 billion final year, Vale pronounced Feb. 26.
Still, Vale’s and Sumitomo’s finish wipeout detriment is someone else’s gain, in this box a new owners of Isaac Plain, that acquired a resources for a favoured tip, and merely had to fun ongoing spending and any debt obligations.
The new owners of Isaac Plains, Stanmore Coal, wish to restart prolongation in a initial half of 2016 and guess a spark cave could work for another 3 years.
The marketplace took notice when a news of a thespian squeeze hit: Stanmore stays a minnow with a marketplace capitalization of usually $30 million. But with a shares adult scarcely 70 per cent on Thursday, investors have taken to a deal.
Still, as SMH adds, indolent coking and thermal spark prices will continue to import heavily however regardless of how fast they can restart production. Metallurgical spark has depressed another 25 per cent given Jan to about $US82 a tonne, from some-more than $US300 in 2011, while thermal spark has mislaid 8 per cent given Jan to languish around $US59 a tonne, compared to about $US150 3 years ago.
Then again, with Stanmore’s cost basement probably nil, it would be a dope not to take a rejected assets. As Kiril Sokoloff’s 13D wrote recently, “Buy when they give it away. What are they giving divided now?” and relate how in 1977, “we were walking uptown in New York City with a crony who worked for a distinguished trust company. He told us that a curators of an estate had usually sole a triplex on East End Avenue for $1. The reason? The $3,000 per month upkeep was “depleting a resources of a estate”.
Last week, Glencore sole a Cosmos nickel cave for AU$24.5 million. In 2008, Xstrata Plc paid AU$3.1 billion for Jubilee Mines to benefit control of Cosmos—the Perth-based company’s flagship operation.
For what it’s worth, Javier Blas tweeted this week that, formed on information from Citi Research, 90% of all MA that miners did given 2007 has been created off. Makes we consternation about a stream MA boom…
All of that creates a researcher consternation if investors are blank a large picture:
There is a hulk infrastructure investment bang usually removing started in Asia and along a Silk Road. Wasn’t a whole commodity bang of a final decade formed on infrastructure investment in China? Now, it will enhance to all of Asia and beyond.
It is engaging to note how small is being created in a West about One Belt, One Road (see associated themes). China Development Bank records that a series of cross-border projects underway in a Silk Road bid already volume to $980 billion. Reportedly, Asia’s infrastructure needs are tighten to $8 trillion by 2020.
It stays to be seen if China can rebound, and if purchases such as Stanmore’s $1 merger of a site that has a apparatus of 30 million metric tons will be lucrative. At stream prices, each incremental ton constructed loses money. But maybe spark prices will rebound.
For now, however, one thing is certain – a biggest leader is not Stanmore notwithstanding a unexpected mountainous batch price, though Tony Poli, a chairman who sole Issac Plains during a comprehensive tip to a genuine Japanese conglomerate:
[Poli] could hardly trust his fitness when Sumitomo came knocking. Then in 2014 Aquila was acquired by Baosteel and Aurizon for an eye watering $1.4 billion. It gave a dual companies entrance to Aquila’s West Pilbara iron ore project, though a timing could hardly have been worse. Iron ore prices have slumped by some-more than half in a final 12 months heading to conjecture Aurizon might be forced to eventually take a writedown on a value of a Aquila understanding on a change sheet.
All of that is a really timely reminder: it is never an tangible profit, until it has been booked. And as remarkable above, for 90% of all MA deals in a past decade, a usually thing requisitioned is 100% losses.
Australian Mining Boom , Bankruptcy Protection , Chinese Housing Bubble , Coal Mines , Coking Coal , Commodity Bubble , Commodity Prices , International Coal Market , Isaac Plains Coal Mine , Shadow Banking System , Thermal Coal Prices