If the latest rumors are true, then Peabody Energy (NYSE: BTU) will not be the last major miner to pay a pretty penny for metallurgical coal.
Mere days after Peabody and steelmaker ArcelorMittal (NYSE: MT) joined forces to forge a winning bid for coveted Australian producer Macarthur Coal, reports suggest that London-based miner Anglo-American is mulling an offer for Walter Energy (NYSE: WLT) at $120 per share. Although no formal bid has been announced, The Times of London did include some intriguing detail in its report, including an indication that Anglo-American may have already arranged financing for the deal. The newspaper reported that BHP Billiton (NYSE: BHP) might also have some interest in Walter.
The news sent shares of Walter Energy skyrocketing by as much as 30% intraday Wednesday, although even at its peak the stock remained 32% beneath its 52-week high. Fools may recall that shares of Walter Energy suffered a massive decline in early August, when deeply disappointing earnings results coincided ruthlessly with an acute selloff in the equity markets. I pounced on the opportunity to initiate additional exposure to several quality coal miners at what I deemed deeply distressed valuations.
Taken together, Peabody's substantial bid for Macarthur and these swirling rumors about a looming bid for Walter Energy lend credence to the notion that the noteworthy decline in coal stock valuations of late are likely to prove a fleeting phenomenon indeed. Apparently energized by Walter's resurgence, Patriot Coal (NYSE: PCX) soared more than 14%, while Alpha Natural Resources (NYSE: ANR) and Arch Coal (NYSE: ACI) each added about 10%.
At least one analyst conveyed skepticism toward a potential pairing of Anglo and Western, suggesting that Anglo's lack of a foothold in U.S. coal markets and the landlocked character of Walter's asset portfolio rendered access to the crucial seaborne market challenging. To the contrary, however, Walter Energy's own recent acquisition of Western Coal taps into considerable met coal reserves at operations in British Columbia that are indeed well positioned for export (using underutilized railroad and port infrastructure). Furthermore, I would argue that the strategic significance of U.S. coal in meeting forecasted global demand growth over the coming decade might lead a major producer like Anglo-American to hurriedly enhance what the analyst described as a "negligible presence" in U.S. coal markets.
I continue to perceive ample opportunity for Fools to generate some heat in their own portfolios with a number of major coal miners that continue to trade at substantial discounts to their 52-week highs. Even as investors around the globe adjust their long-term growth estimates to the downside, a global supercycle of the sort described by industry leaders does not burn out overnight.
- Add Walter Energy to My Watchlist
- Add Alpha Natural Resources to My Watchlist
- Add Arch Coal to My Watchlist
- Add Patriot Coal to My Watchlist
- Add Peabody Energy to My Watchlist
