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The mining business has a long history of companies grossly overpaying for assets. But no one will accuse George Dethlefsen of that crime.
Mr. Dethlefsen’s firm, Corsa Coal Corp., was approached this year about buying coal assets in Pennsylvania from Russian steel giant OAO Severstal, which was bailing out of the United States.
Severstal had bought these operations for $900 million in 2008, when steelmaking coal prices were hitting all-time highs. Mr. Dethlefsen would not pay anything close to that in today’s awful coal market, but he didn’t have to. Corsa bought the operations for a grand total of US$60 million, or less than 8% of what Severstal paid.
“It’s a tough market. We have our work cut out for us with this business and it’s not going to be easy,” said Mr. Dethlefsen, Corsa’s chief executive. “But we’d rather start by paying US$60 million than US$500 million.”
Indeed. It used to be that when mining companies put assets up for auction, they wouldn’t actually sell them unless they got a very full price. That could be because their commodity price assumptions were too optimistic, or they were just too attached to them and convinced they could extract more value. Dozens of interesting projects were put up for auction in recent years and never changed hands because sellers demanded too much money.
That changed in 2014, especially at the low end. This will go down as the year when miners were happy to dump their troubled assets. They just wanted to get them off the books and make them someone else’s problem.
The Corsa-Severstal deal was one such example. Rio Tinto Ltd., another, sold coal assets in Mozambique for US$50 million, just three years after paying US$3.7 billion for them. Kinross Gold Corp. dumped Fruta del Norte, possibly the world’s richest undeveloped gold project, for US$240 million, or less than a quarter of what it paid six years ago.
And then there was the unfortunate tale of Alberta coal miner Grande Cache Coal Corp. A pair of Asian commodity traders (Marubeni Corp. and Winsway Enterprises Holdings) paid $1 billion for the company in 2011. But coal prices turned dramatically against them. So in October, they agreed to sell their Grand Cache stakes for a buck. Each.
For the rest of this article, click here: http://business.financialpost.com/2014/12/29/canadian-miners-brace-for-knife-fight-after-year-of-dumping-assets-at-fire-sale-prices/