Asian coal: Investors looking to ride Asia’s booming energy demand should take a fresh look at Bumi Resources. The Indonesian coal miner is scheduled to begin trading in London via a backdoor listing through Nathaniel Rothschild’s Vallar. The complex share swap makes investors in the new Vallar part-owners of Indonesia’s richest deposits of thermal coal. Despite efforts to promote cleaner alternatives, China and India seem destined to import more. The question is whether Bumi’s London listing forces it to abandon inscrutable accounting methods that alienated investors in the past.
Oil’s rise has put coal back on the front burner. Indonesian coal doesn’t benefit directly from costlier crude - the few generators in Asia that still burn oil cannot simply switch. But utilities can lean more heavily on coal-burning plants instead of oil-burning ones. And investors tend to push commodities up together: investors’ recent hunt for hedges against inflation has bound coal’s price even more tightly to oil’s. Oil has climbed almost a third since early November; coal by more than a quarter.
Even if oil ebbs, coal’s case remains strong. China and India are the first- and third-largest producers of coal. They are also among the world’s largest importers. Closing small, unsafe mines has halted China’s opportunistic exports. And despite its increasing interest in natural gas, the US Energy Information Administration estimates China’s coal consumption will nearly double by 2020. Standard Chartered projects that coal imports will rise almost 10 per cent this year. India’s imports are growing even faster: Standard Chartered forecasts a 20 per cent increase this year.
Bumi’s Indonesian shares tended to trade at a lower price-to-earnings ratio than industry peers due to its connections to the politically powerful Bakrie family, who control it, and uncertainty about the company’s finances. Shareholders have tolerated unexplained asset sales to unknown entities, and the appearance of exorbitant short-term loans on the balance sheet. The hope is that a London listing will force a more transparent approach. With Vallar trading at roughly 8.7 times this year’s expected earnings, according to a Breakingviews analysis, a roughly 25 per cent premium to the large diversified miners, investors seem to be giving the new-look company the benefit of the doubt.
