GCL - Gloucester Coal

[noirua]

Looking at the second quarterly for Gloucester Coal they forecast $41 - $44 million net profit in the first half, and that is reasonable but not upbeat.

Disappointing is the thermal coal reality check with 1 million tonnes of thermal coal sales set at just over US$70 per tonne to the end of YE June 09.. Not so much profit there with a 56% fall in coking coal sales at a previous US$300 per tonne.

Cash in hand is just $25 million after buying back some shares. None bought lately though.

$134 million is hedged at 85 cents to the US$.
643,365 shares were bought and cancelled as part of the buyback.

Shares probably not bad value after the big drop but bad publicity for the sector may not yet have calmed nerves.

 

[vincent191]

This stock has been very disappointing, maybe they should have used the money to pay a dividend instead of doing a share buyback?

In my opinion, the share buyback did nothing for the share price.

 

[oldblue]

This stock has been very disappointing, maybe they should have used the money to pay a dividend instead of doing a share buyback?

In my opinion, the share buyback did nothing for the share price.

That's the problem with "silent evidence".
We'll never know what the SP would have done without the buyback!

 

[dirty_harry]

Hi guys,
GCL (and some others like MCC) look incredibly cheap to me, could someone please tell me if my logic is wrong.
- pe ratio in the 3's and paid off all debt, so no risk of dilution through capital rasing.
- can survive on selling only thermal coal while the industrial crisis is on.
- Australian companies like GCL are low cost producers so will be left standing if prices really collapse. The US producers are higher cost and will be losing money if prices come down much further.
- Beautiful hedge against a collapsing AUD.
- Fastest growing fuel in the world. Coal is politically incorrect but the greenies will still want their hot showers, not to mention China and India.
- You are buying more than a ton of coal in the ground for each dollar you invest right now.
- when the steel mills start up again one day the upside is massive.
- Unless someone can invent a fusion reactor, all fossil fuels including gas, oil and coal are very valuable medium to long term.
- Seems like this is a good example of something going down because it is gone down.

 

[vincent191]

Harry, I hope you are right, I am still holding on to my GCL even though I am behind the 8 ball by a proverbial mile. I have long losted my "averaging down" ability on this stock.

Firstly I have run out of cash and secondly it has already broken my rule not to have more than 10% of any one stock in my portfolio.

All I can say is, fear is dominating the market and common sense and logic no longer rules.

I agree with some commentators who hold the view that the glass is half full instead of being half empty. The current depressed market is holding some wonderful buying opportunities.

I just wish the bull will hurry up and get here soon. Everytime I see the market plunge, I get weaker at the knees. At least I am the master of my own destiny and did not borrow to invest, unlike some poor punters with Storm.

 

[dirty_harry]

Vincent,
hang in there mate. I look at it as a 5 year investment from this point.
I bought some more today, and also holding a lot of MCC. The Chinese, Koreans and Indians paid $20/share for stakes in MCC for a reason - they know there are problems with supply longer term. They haven't sold any. Apparently Soros bought a lot of Peabody at much higher prices in September, and Buffet also bought a lot of COP (gas, etc) at that time. Since then they have lost over half if they sold now.
My opinion is that the west will print money this year like never before, and once there is inflation again commodities will skyrocket, especially energy. Although abundant, there is not as much coal in the world as people think. US is past peak production, and Australia has high quality.
Coal is Australia's largest export by a huge margin. If there is depression and a large drop in demand, then the AUD could crash offsetting the effect for the companies, but ruining cash horders in real terms.

 

[oldblue]

Hi d-h.

For what it's worth, I think your logic's pretty right.
I wouldn't try to estimate P/E's and other numbers - current high profitability looks to be only temporary - but GCL should be a survivor and will prosper in better times.

I'm holding tight.

 

[dirty_harry]

Thanks Blue,
my calculations and assumptions for the PE are:
current spot price for thermal US80, assume US120 for coking.
Conservatively assume 2 mill tons/yr at average of US90 = AUD135 at .67fx rate.
Production cost/ton is AUD75 from their presentations.
Therefore profit approx = 135-75 x 2mill tons. = 120 mill.
Subtract 25% to be conservative = 90 mill.
Market cap is approx 270mill, 270/90 = PE of 3.
They will blow some of this on exploration but so what.
Imagine if coal prices go back up later on (maybe 2 years more or less), they increase production, and in a commodities bull market people will pay 12-15 time earnings instead of 3.
Am I missing something?

 

[michael_selway]

Thanks Blue,
my calculations and assumptions for the PE are:
current spot price for thermal US80, assume US120 for coking.
Conservatively assume 2 mill tons/yr at average of US90 = AUD135 at .67fx rate.
Production cost/ton is AUD75 from their presentations.
Therefore profit approx = 135-75 x 2mill tons. = 120 mill.
Subtract 25% to be conservative = 90 mill.
Market cap is approx 270mill, 270/90 = PE of 3.
They will blow some of this on exploration but so what.
Imagine if coal prices go back up later on (maybe 2 years more or less), they increase production, and in a commodities bull market people will pay 12-15 time earnings instead of 3.
Am I missing something?

Yeah these are great companies. However what you should have done is sold at the near highs (like i did) and then you could buy back in later like now when its low etc. Did you ever consider that?

Thanks

MS


Earnings and Dividends Forecast (cents per share)
2008 2009 2010 2011
EPS 28.7 101.4 101.0 103.9
DPS 21.0 40.0 51.0 57.0

Date: 2/2/2009
Author: Ayesha de Kretser
Source: The Australian Financial Review --- Page: 16
In February 2009, China will begin serious dealing on coal supplies and prices.This will be closely watched by Australian coal sellers. Coking and thermal coaldemand in China is unclear, but Fortescue Metals Group negotiated a price of$A96.63 per tonne for iron ore in late January 2009

 

[dirty_harry]

Yes, wish I sold everything June to buy back in now that's for sure.
Congrats if you did.

I think living OS in a low or no tax situation somewhere would be a huge advantage because it's usually fear of CGT that stops people from selling when prices look a bit rich.

 

[noirua]

GCL report of exploration to increase reserves: http://www.asx.com.au/asxpdf/20090202/pdf/31fvmrwh6h19rx.pdf

BT Investment Management (Assoc of Westpac) has increased its holding in GCL from 5.01% to 6.05%.

 

[vincent191]

At last something has happened. They have announced a merger with Whitehaven based on 2.45 WHC share for 1 GCL.

Since WHC is trading at $1.50 does this mean that GCL is worth $3.68??

Anyway no matter what, I think this is a good move to merge the two and reduce any cost duplications. Anything that can reduce my losses is a good thing.

 

[noirua]

At last something has happened. They have announced a merger with Whitehaven based on 2.45 WHC share for 1 GCL.

Since WHC is trading at $1.50 does this mean that GCL is worth $3.68??

Anyway no matter what, I think this is a good move to merge the two and reduce any cost duplications. Anything that can reduce my losses is a good thing.

Both companies are on similar EYs and PEs and it is only the dividend of Whitehaven that is so much lower than Gloucester's.
I can see the stocks going higher when they reopen on confidence factors.

 

[woltage]

At last something has happened. They have announced a merger with Whitehaven based on 2.45 WHC share for 1 GCL.

Since WHC is trading at $1.50 does this mean that GCL is worth $3.68??

Anyway no matter what, I think this is a good move to merge the two and reduce any cost duplications. Anything that can reduce my losses is a good thing.

Here's my guestimate at GCL's new worth

Shares GCL = 82 mil
Shares WHC = 391 mil
New GCL shares = 391/2.45 = 160
Dilution = (1 - (82/82+160))*100 = 76%

MC Combined = 900 mil
New worth = 900 * (1-0.76) = 306 mil
Increase = (306-268)/268 = 14%

So GCL should go up 14%

I could be wrong

 

[michael_selway]

Here's my guestimate at GCL's new worth

Shares GCL = 82 mil
Shares WHC = 391 mil
New GCL shares = 391/2.45 = 160
Dilution = (1 - (82/82+160))*100 = 76%

MC Combined = 900 mil
New worth = 900 * (1-0.76) = 306 mil
Increase = (306-268)/268 = 14%

So GCL should go up 14%

I could be wrong

Hehe what about WHC price going down

Thanks

MS

 

[gfresh]

Really just means there will be a lot of arbing going on to approach that 2.45 ratio Looks like WHC is taking the brunt of it at the moment - the exact prices of both should just vary in tandem once it gets there.

UBS has done a nice job keeping GCL flat for the last few weeks. I had a suspicion somebody was trying to keep the price down (or was it up?), with the current volatility, for a stock to stay in that range for that long seemed a little odd.

I think it's a good thing long-term, but current negative global mood means it will probably not much of a huge re-rating in stock prices short term.

 

[UMike]

Out at $4.95.

Thanks Noble group for the take over offer and the quick increase in the SP.

I Really liked GCL and will look for a re-entry if it moves a fair bit lower.

 

[noirua]

Barclays have increased their holding, via 3 funds, to 8.28% of Gloucester Coal which looks like a positioning move. Despite the stock moving lower early on today they look a good gamble if Noble Group raise their offer in the coming months.

 

[noirua]

Barclays have increased their holding, via 3 funds, to 8.28% of Gloucester Coal which looks like a positioning move. Despite the stock moving lower early on today they look a good gamble if Noble Group raise their offer in the coming months.

Barclays Group holding is now up to 11.45% in GCL. This looks to be a bit of a gamble stock now on the outcome of the bid situation.
If Noble Group is genuinely interested then they need to raise their bid substantially.

 

[noirua]

Gloucester Coal seem to have missed out on the recent run up in coal companies stock prices. Or was it that they leaped on the takeover bid that may now be holding them back a bit. Speculative now on a possible counter bid in this now tightly held stock.