Sydney - After watching his fortune evaporate during the coal industry meltdown, you'd think Australian electrician-turned-entrepreneur Nathan Tinkler would have walked away from the industry for good. Instead, he's chastened and back in the game.
Coal is under siege as activists pressure utilities to close ageing power plants, nations take their boldest steps yet to cut pollution and President Barack Obama imposes tougher regulations in the United States. Even with those headwinds and prices languishing at the lowest levels since 2006, Tinkler, 39, is making deals again as chief executive officer of Australian Pacific Coal.
“The Obama effect has definitely driven an activist view that coal is coming to the end of its life,” said Tinkler, who was ranked as Australia's youngest billionaire at the age of 35 by BRW magazine in 2011 until his wealth was slashed after a series of asset sales and court cases. “I think the coal industry is far from doomed.”
Tinkler is betting on forecasts that Asian markets, including India, will still need coal well into the future, despite the global move toward natural gas, wind and solar power. Australia is forecast to overtake Indonesia and regain its position as the world's largest coal exporter, according to the International Energy Agency. Its shipments of power station coal are expected to grow 4.5 percent a year through 2020 as cost cuts help the sector, the IEA said.
India, Malaysia and Vietnam will probably drive demand for Australian coal as China's consumption slows, said Matthew Boyle, a Sydney-based industry consultant at CRU Group who estimates the South Pacific nation's thermal coal exports will grow about 1.5 percent a year through 2020. The local industry argues that its coal doesn't produce as much pollution as fuel from competitors, giving it an edge as nations move to reduce carbon emissions.
“Coal and coal-fired power generation is still the cheapest form of electricity,” Boyle said by phone. “If you need the power now, coal is probably the easiest way of making that electricity. There will still be demand growth.”
Australia's thermal coal earnings are forecast to increase by almost 1 percent to A$16.2 billion ($11.3 billion) in the 12 months through June as higher export volumes and the positive impact of a weaker Australian dollar offset a forecast fall in the price, the government said last month.
Tinkler is re-entering an industry under increasing pressure from investors and consumers. Rio Tinto Group, the world's second-biggest mining company, last year dismantled its energy division in a restructuring seen by Jefferies as signaling a potential exit from coal. Thermal coal at Australia's port of Newcastle has slumped to less than $50 a metric ton after five years of declines, according to data from Globalcoal, while shares of producers such as Peabody Energy and Whitehaven Coal have been hammered.
Coal supporters are underestimating how quickly clean technologies will transform the energy sector and relying too much on forecasts that in the past have been wrong, said Tim Buckley, director of energy-finance studies at the Institute for Energy Economics and Financial Analysis, which seeks to reduce the use of the fuel.
“The market is decimating these coal companies every month,” he said. “And yet Australia seems to be deluded into thinking it will all be good.”
Australian Pacific Coal, which last month agreed to buy a stake in a coal venture in New South Wales state from Anglo American, is valued at 86 million Australian dollars in Sydney. The shares closed at 2 Australian cents, unchanged from Friday. Asked about his current net worth, Tinkler said in an interview last week: “I wouldn't say it's much,” adding that he has “largely freed” himself of debt. Tinkler has seen his fortunes swing sharply. After selling his house in 2006 to buy into a coal mine, he amassed a business empire that included infrastructure investments, a horse- breeding operation, and the Newcastle Knights, a rugby-league team.
His 5.3 billion bid for Whitehaven collapsed in 2012 amid a slide in coal prices and his battles with creditors. He sold his shares in the company a year later. “I've had a few looks in the mirror over the last few years, there's no doubt about that,” he said. “My own wealth was heavily tied to the coal industry, which has been in decline for the last few years. It hasn't been easy. But there are no prizes for giving up.”
BLOOMBERG