Outright acquisitions are not the norm. Noble prefers to take minority stakes mostly to secure the supply of commodities. While ownership of assets could bring greater margins (from value-add as producers), earnings volatility is also higher from product price changes and operating cost variability, and higher capital outlays to acquire assets outright. We believe that this acquisition was triggered by Noble’s view that Gloucester’s proposed merger with Whitehaven would not be in its best interests, and also recognition that Gloucester Coal is undervalued. An independent expert, PwCS,has offered a valuation estimate of A$8-11/share. Noble is familiar with Gloucester Coal, having taken a 21.7% equity stake earlier, and buys around 25% of Gloucester’s coal output. In 2007, Noble blocked Xstrata’s A$4.75/share bid for Gloucester Coal. With Gloucester Coal keeping its ASX listing, there is a possibility that Noble’s other Australian coal assets, such as Donaldson Coal, may be injected into Gloucester, rather than opt for a separate listing. The listing of Donaldson Coal, 70% owned by Noble, had been scuttled by the market downturn in 2H08.
Improving outlook. The outlook for soft commodities is a little mixed in the near term with lower prices, reduced fertiliser use, and poor weather contributing to lower production of soybeans in South America. Estimates are calling for 711m fewer bushels (19m tonnes) of soybeans this year over last year. While the reduced production could constrain volume in the near term, the resultant price rise will likely lead to increased plantings and fertiliser use in the next planting season, implying abumper harvest next year. The supply boost next year would benefit Noble when its new crushing plant in Argentina commences operations as the plant will be purchasing in a buyers’ market. The outlook for iron ore has also improved with prices rising and China’s steel manufacturers raising prices, suggesting stronger demand.
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