Macarthur Rejects Reduced Peabody Offer

Shares Plunge As Miner Rejects Bid

Macarthur Coal Ltd., the world’s largest pulverized coal producer, has rejected the latest bid from Peabody Energy Corp.’s saying it is too low. Macarthur’s two biggest shareholders, Citic and ArcelorMittal are also expected to reject the bid.

Peabody reduced its offer from A$16 a share to A$15 a share, citing its due diligence review of Macarthur’s finances and the Australian government’s plan to bring in a ‘super tax’ on mining companies’ profits.

Shares in Macarthur fell over 20 per cent on the news to close at A$11.25 a share.

Macarthur Cool On Peabody Offer

"Not Inclined To Take A Discount" - Chairman

The Chairman of Australian coal miner Macarthur Coal has said that Peabody Energy’s lowered takeover will be hard to recommend.

Keith Lacy is quoted in the Australian Financial Review as saying that while acknowledging the Australian government’s proposed 40 per cent tax on mining companies’ profits makes it harder of Peabody to pay top dollar, he added "we're not inclined to take a discount for a tax that may never be introduced."

The “super tax” is expected to be introduced from July 2012.

Peabody lowered its cash offer yesterday by one dollar to A$15 per share citing the proposed tax and following its due diligence exercise.

Shares in Macarthur Coal closed down1.9 percent to A$13.12 on the Australian stock exchange, their lowest level since 30 March and 13 percent below Peabody’s reduced cash offer.

Peabody Cuts Macarthur Bid

New Tax Said To Be Behind Bid Cut

United States coal miner Peabody has cut its offer for Australia’s Macarthur in a move which seems to have been triggered by the Australian government’s plan for a 40 per cent tax on mining companies’ profits.

Peabody has dropped its bid for Macarthur Coal Limited from A$4.07 billion (US$3.67 billion) to A$3.82 billion after completing its due diligence and after the announcement by the government on the 40 per cent ‘super tax’ at the start of last week.

"The definitive proposal delivers a clear, compelling and significant premium for Macarthur shareholders, and follows Peabody's due diligence as well as the introduction of the Australian resources profit tax proposal," it said.

The revised offer is for A$15.00 per share. Peabody's first bid was for A$13 per share and was followed by further offers of A$14 and A$16 per share. Macarthur’s shares – which had been trading higher than the current offer in the middle of April – closed at A$13.38 in Sydney on Monday.

Macarthur's board has rejected two Peabody bids as well as a bid from Australia's New Hope in favour of its own takeover of Gloucester Coal. However, that was rejected last month by Noble Group, a key Gloucester shareholder in a move which would have given Noble a 24 per cent stake in Macarthur and which would most likely have thwarted the Peabody bid. Noble says it is no longer interested in that transaction.

In response to the new offer, Macarthur continued to advise shareholders to take no action until its directors had reviewed the offer. It is believed that the Macarthur board is set to meet in the next couple of days.

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Macarthur Coal Says Profits May Fall

Macarthur Income May Be 39 Per Cent Down

Australian coal miner Macarthur Coal Ltd has said that full-year profits may fall as much as 39 percent from a year ago after a fall in prices.

Net income may be A$103 million to A$113 million for the year ending 30 June from A$168.6 million in 2009, the company said in a statement to the Australian stock exchange.

Macarthur is currently the target of a A$4.1 billion ($3.8 billion) takeover offer from America’s Peabody Energy.

“Profitability in the June 2010 quarter has improved given recent coal price settlements with higher prices starting April 1”, the company said in the statement. Macarthur said it is still on course for full-year sales volumes of 4.8 million to 5.0 million tons.

Coking coal prices have risen sharply in recent months after the global steel industry came into recovery. A number of global coking coal suppliers including BHP Billiton, Rio Tinto and Teck Resources won a shift from annual to quarterly contracts and a rise of 55 per cent for supplies in the April to June quarter. Australia’s Centenntial Coal also warned of a tightening in the global supply of the product.

Peabody asked Macarthur, the world’s largest exporter of pulverized coal, for more information after completing a review of its finances yesterday. The American miner is also said to be concerned after the Australian government announced on Sunday that it plans to bring in a new 40 per cent tax on mining company’s profits. Macarthur said on Tuesday that the new tax had a brought an air of uncertainty to the industry.

Macarthur Resumes Shipments From Dalrymple

Australia’s Macarthur Coal has resumed coal shipments from the Dalrymple Bay Coal Terminal in Queensland following the closure of the terminal following a cyclone.

Macarthur declared force majeure on its coal shipments on 19 March. Similarly, BHP Billiton declared force majeure last week but has said that its operations will take 3-6 weeks to resume full operations. The Blackwater and Goonyella rail lines, which transport coal to and from the mines were also halted.

Hard coking coal prices have risen sharply in the past two weeks on the back of the supply disruptions. Prices of premium quality coal have been selling at $240 a tonne, while offer prices for the steel feed are between $240-$250 a tonne, up from $220-$225 a tonne about two weeks ago, traders said.

POSCO To Spend Agressively To Secure Raw Materials

POSCO, South Korea’s largest steelmakers, says it will actively pursue overseas investments in raw material assets as the costs of coal and iron ore become higher.
CEO Chung Joon Yang told shareholders that “the company will pursue investments in overseas mines more aggressively to secure raw materials.”
With iron ore contract prices up by around 40 per cent and even greater increases mooted for coal, steelmakers face escalating costs as the industry looks set to recover after the global recession.

“Economies at home and abroad are on a recovery path now, but the outlook for a full recovery is uncertain,” Mr Chung said today. “We expect competition among steelmakers to increase.”

The company is planning to buy a stake of as much as 15 per cent in the Roy Hill project in Australia to add to the 16.7 per cent stake POSCO bought in Jupiter Mines last year. POSCO also has a 10 per cent stake in Queensland’s Macarthur Coal.
POSCO has also bid for a stake of as much as 68 per cent in Korean trading firm, Daewoo International.

The company plans to spend as much as $8 billion in capital spending in 2010, almost double its spending last year. The company is also looking to expand overseas with as much as $30 billion earmarked for expansion into India, Indonesia and Vietnam. “We will go ahead with overseas mill plans in countries including India and Indonesia in order to strengthen the company’s status as a global player,” Mr Chung said.

Macarthur Coal Profits Down 63 Per Cent

Australian coal miner Macarthur Coal has reported a 63 per cent fall in first-half profits on lower coal prices.

Net profits fell to $39.6 million for the six months ended December 31, down from $106.9m a year earlier. However, the profit was within analyst guidelines of $37-42 million. The company said that weaker coal prices knocked $180.7m off the bottom line, offsetting higher production volume and lower costs.

Chief Executive Nicole Hollows told analysts that she is optimistic about contract coal prices, with Chinese demand set to drive prices higher.

Some of the major producers such as BHP Billiton are trying to move to quarterly pricing, although steel makers in Japan are said to be resisting the idea preferring to remain with annual contracts.

"We understand that the pricing that has been tabled in Japan is above US$200 a (metric) ton and is similar to where the spot price currently is into China and India," she told analysts.

Macarthur's pulverized coal is usually sold at a discount of between 20% and 30% to contract coking coal prices but Ms Hollows is hopeful that market conditions might allow Macarthur to reduce that discount this year.

Ms Hollows said about 28% of Macarthur's sales in the first half were to China but that there were no long-term contracts in place and that all these sales had been at spot price.

Macarthur owns two coal mines in Queensland’s Bowen Basin and Ms Hollows said the company is on track to produce 5 million tonnes of coal this year.