Australian Coal M&A Is a `No Brainer' on Cheap Debt, Southern Cross Says

Macarthur Coal Ltd., Whitehaven Coal Ltd. and Aquila Resources Ltd. may be Australian takeover targets for overseas suitors using cheap debt fueled by record- low U.S. interest rates, said Southern Cross Equities Ltd.

“With U.S. dollar interest rates at record lows, plus U.S. corporates having strong cash balances this year, this is a no brainer for any offshore players,” Charlie Aitken, head of institutional dealing at the Sydney-based brokerage, said today in a report. Peabody Energy Corp., Xstrata Plc and Teck Resources Ltd. may be possible acquirers, he said.

Foreign companies are targeting coal producers in Australia, the world’s biggest exporter of the fuel, to benefit from surging prices and sales to Asia. There have been $6.7 billion of coal acquisitions announced so far this year in Australia, exceeding the $5.9 billion for the whole of last year, according to data compiled by Bloomberg.

“The Australian coal sector is the standout right now to see near-term corporate activity,” Aitken said in the report. “The seaborne coking coal market remains extremely tight with China structurally changing to a net importer, while thermal coal markets also appear to be in the process of structural change.”

Macarthur shares rose 6.2 percent to A$11.87 at 12:10 p.m. Sydney time on the Australian stock exchange. Whitehaven gained 2.1 percent and Aquila increased 2.8 percent.

China last year imported a record amount of coking coal, used for steelmaking, and India almost doubled purchases of energy coal for its power stations. Whitehaven and Riversdale Mining Ltd. may be “in play” amidst a “mad dash” for coal assets, UBS AG analyst Glyn Lawcock said this month.

Whitehaven and Macarthur both control port allocations that are attractive to competitors, Aitken said.

“We think it is logical that Peabody comes back for Macarthur Coal at some stage,” he said. Macarthur this year rejected takeover offers from Peabody and New Hope Corp.

To contact the reporter on this story: Elisabeth Behrmann at Ebehrmann1@bloomberg.net

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