How clean is my valley?
Canada's biggest generator of energy has launched a $1.5 billion hostile bid for the country's leading developer of clean power, including the two largest wind farms in Ontario.
TransAlta Corp.'s proposed acquisition of Calgary-based Canadian Hydro Developers Inc. could be the first of many moves in Coal going green?an energy sector that sees firms trying to green up their assets, partly to limit their exposure to carbon-emission penalties once a national cap-and-trade system is introduced.
The move bodes well for other publicly traded clean-energy companies like Pristine Power Inc., Plutonic Power Corp. and Naikun Wind Development Inc. which could also end up being targeted by larger generators of fossil-based power, analysts note.
But Canadian Hydro is playing hard to get. TransAlta chief executive Steve Snyder said his company, based in Calgary, proposed the same transaction back in December and was promptly rebuffed, forcing it to go directly to Canadian Hydro's shareholders.
The proposed acquisition is set to boost the amount of green power in TransAlta's portfolio to 1,900 megawatts and represent 22 per cent of its power mix, up from 15 per cent. TransAlta's bid values Canadian Hydro's stock at $654 million but also assumes $846 million in debt and other items. The all-cash offer of $4.55 a share is a 25-per-cent premium to last Friday's closing price of Canadian Hydro common shares on the Toronto Stock Exchange.
Shareholders signalled they are expecting more. The company's share price rose 34 per cent on Wednesday to $4.90. Investors have until Aug. 27 to vote their shares. Holders of at least two-thirds of common shares must accept the offer for the acquisition to go through.
China, the world's largest coal producer and consumer, has shifted to being a net coal importer in the first five months of the year, with monthly imports hitting record highs above 9 million tonnes in April and May.
China's June raw coal output rose 12.3 per cent from a month earlier to a record high of 279 million tonnes. June coal import data is expected to be released within the next few days. China's coal demand is expected to gradually pick up in the second half of the year, and coal output will likely grow fast as small mines speedily return to production, the China National Coal Association has said.
The coal market is facing increasing pressure from oversupply, said the association in a statement. Coal consumption in the power sector fell in the first half of the year. Power plants connected to major grids consumed 315 million tonnes of coal, down 8.9 per cent year on year, the association said, quoting Zhong Neng Power Industry Fuel Co.
The recovery of the steel sector, however, pushed coal consumption at China's steel mills up 1.6 per cent in the first six months of the year to 230 million tonnes, the association added.
Shares of junior coal miner Hillsborough Resources (TSX:T.HLB) surged more than 41 per cent to 44.5 cents on Monday, after Vitol Anker International B.V., a wholly owned subsidiary of the Vitol Group, announced its intention to make an offer to acquire all of the common shares of the company that it does not currently own for 45 cents per share. Vitol Anker says it has entered into a lock-up agreement in support of the intended offer with holders approximately 9 per cent of the outstanding Hillsborough common shares.
Eskom Holdings Ltd, the state-owned South African electricity utility, plans to seek board approval in December for a third new coal-fired power station. The plant will be capable of generating 4,800 megawatts of power.
Rail freight operator Pacific National has signed a 10-year coal haulage contract with its largest coal customer Xstrata Coal, that will generate more than $800 million for its debt-laden parent Asciano. The take-or-pay contract replaces numerous existing contracts and was announced as shareholders voted on last month's $2.35 billion rights issue, which is to be used to repay debt and better position the business for the future.
The new contract covers significant coal haulage volumes from the Hunter Valley and Port Kembla regions of NSW and will expand Pacific National's footprint across that state's rail network.
Asciano, one of the stock market's worst-performing companies over the past year, decided in May to raise capital via a rights issue rather than sell assets to appease its bankers. At that time Asciano (AIO) owed more than $4.9 billion to the banks - and $2.66 billion was due to mature this financial year.
In New York and on Tuesday, shares of coal companies tumbled following bleak second-quarter results and disappointing production guidance by one of the world's largest coal producers. Peabody Energy Corp. reported net income of $79.2 million, or 29 cents per share, compared with $233.3 million, or 85 cents per share, in the prior-year period. Revenue slid to $1.34 billion from $1.53 billion.
Analysts polled by Thomson Financial expected earnings per share of 49 cents and revenue of $1.44 billion. Peabody stood by its 2009 production forecast of 185 million to 190 million tons in the United States and 20 million to 23 million tons in Australia, with estimated total sales of 225 million to 245 million tons.
Dahlman Rose & Co. analyst Daniel Scott said the unchanged production outlook was surprising because on the Australian side, the situation in Asian coal markets has improved significantly since the company provided estimates in mid-April. Meanwhile, on the U.S. side, domestic steam markets seem to have deteriorated further in the past three months, he said.
Peabody, (NYSE:BTU) usually the first big coal miner to release its earnings each quarter, is seen as an early indicator of health for the entire sector. Peabody shares fell $2.15, or 6.2 per cent, to $32.68 on Tuesday, the day of the announcement. The stock has ranged from $16 to $71.25 over the past year.
Next to follow, was Banpu Pcl, Thailand's biggest coal producer, which expects profit to decline in the second half from the first six months after the price of the fuel fell because of the global recession, and on lower earnings from its power unit.
The company has contracted to sell coal from mines in China, Indonesia and Thailand at slightly more than $60 a metric ton on average in the six months. That's about 29 per cent lower than $84 a ton in the first quarter. He didn't give a figure for the April to June period.
Bangkok-based Banpu posted a record quarterly profit in the first three months of 2009 as it benefited from locking in supply contracts when prices surged to a record in July last year.