Whitehaven’s PE backers make partial exit

Whitehaven's stock ended the day at A$5.99. On September 6 it closed at A$5.63, down 16% year-to-date.

First Reserve, a US-based PE fund that focuses on energy investments, and AMCI, a joint venture between First Reserve and American Metals & Coal International, still hold 14.7% and 9.7% of the company. As such, they remain the two largest shareholders. The firms initially came in as pre-IPO investors in Whitehaven. The company offered 1.9 million shares at A$1 apiece in June 2007, which suggests that First Reserve and AMCI are still sitting on a substantial paper gain.

"For us, it was a good chance to take a partial realization of what has been a very successful investment," Alex Krueger, managing director of First Reserve, said of the exit. He added that First Reserve has no plans to reduce its stake further.

A week before the transaction, Whitehaven reported a 91% year-on-year decline in net profit to $9.9 million for the year ended June 30. The company blamed the poor performance on problematic sale contracts and a foreign exchange loss on a mine investment.

Output reached 4.2 million tons, up 20% year-on-year, but Whitehaven had to meet commitments to sell 6.6 million tons, which meant buying coal on the open market. Many of the contracts also obliged the company to sell well below current market prices. As a result, it lost $63.4m on the contracts.

First Reserve's ongoing commitment to Whitehaven - and the fact that the disappointing financial results had little impact on the stock price - is largely based on the company's plumb location in the Gunnedah Basin, which is expected to see major new coal developments in the coming years.

"I think the reason for the downturn in Whitehaven's share price is a result of economic gloom in the West as much as anything else," says an analyst at Guotai Junan Securities. "The mining industry remains strong with increasing demand."

The auction process was more challenging. Whitehaven put itself on the market in October 2010 and in April said that potential buyers had been shortlisted. However, a month later the company canceled the auction, apparently because none of the bids were suitably attractive.

Whitehaven had originally been tipped to go for around A$3.5 billion and it was reported that were at least six bidders, including China's Yanzhou Coal, Indian conglomerate Aditya Birla and Peabody Energy.

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• Topics
• Australasia
• Exits
• Industrials
• First Reserve Corp