THERE were more than a few raised eyebrows in the City yesterday, after ENRC said it would snap up a thermal coal producer for $600m. Analysts liked the deal, but investors did not, sending the miner’s shares falling 2.3 per cent to 625p. Perhaps they felt uneasy that the coal producer is owned by ENRC’s founding shareholders – not a good look if you’re a company dogged by corporate governance concerns.
To be fair, we think the think the deal makes sense. The purchase of Shubarkol will give ENRC access to the cheap coal it needs for its three key divisions: ferroalloys, alumninium, and iron ore. Nor was the valuation particularly rich. Collins Stewart puts it at 54 cents per tonne of resource and $2.60 per tonne of reserves. Recent deals, done since the commodities bubble popped, have been done at around $3.25 per tonne of reserve.
So a good deal at a good price, but the share price goes south. That suggests that ENRC’s latest boardroom revamp has failed to fully reassure investors. The firm still needs to do more to narrow the corporate governance discount (see chart right) that blights the shares.