Monday, December 6, 2010

Rio Tinto (NYSE:RIO), Walter Energy (NYSE:WLT) Continue Coal M&A Trend

With demand for coal continuing to rise, led by China and India, a large number of mergers and acquisitions have bee taking place, with 34 underwritings in the sector in November alone, with Rio Tinto (NYSE:RIO) and Walter Energy (NYSE:WLT) part of bigger deals.

FBR commented, "We came back from our Australia trip very bullish on the coal space due to very active and high risk underwriting activity in November (34 underwritings in the mining space). We believed that M&A trends would accelerate as these underwritings were underpinned by projects that had 2-5 year production pipelines behind them. Several of the companies we met with are being or potentially being taken out (Caledon, Riversdale, and Whitehaven). The Chinese and Indians are fueling much of this action, driven by a scarcity factor. The US coal market continues to be impacted by rising environmental rules and regulation; the emerging markets are truly the place to be for investors. Our thesis remains bullish for US steam coal exports to drive rising US coal prices but the domestic market remains challenged by pending Transport rules and other rising EPA regulation. We expect every US company to raise its export focus and grab as much port capacity to capitalize the rest of the world's need for coal."

Rio Tinto was trading at $70.25, up by $0.18, or 0.26 percent. Walter Energy was at $113.93, gaining $3.43, or 3.10 percent.

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