Preliminary bids for a stake in Indonesia-focused coal miner Straits Asia Resources are due this week, but interest among buyers is ebbing as the deadline looms, deal makers said.
Among the worries are questions about Indonesia’s new mining laws. Straits has been in a recent legal dispute involving one of its mines.
The miner’s parent, Straits Resources, meanwhile, may no longer be as motivated to sell its 47.1 percent stake after raising 80 million Australian dollars ($52 million) through a note sale to Standard Chartered’s private equity arm.
Straits Asia has a market value of 891 million Singapore dollars ($583 million) and bankers said it could fetch more than $800 million given Strait’s strong cash flows and customer base.
Bidders covet the two Indonesian coal mines that the Singapore-listed firm controls, which have a production capacity of about 9 million metric tons of thermal coal.
Indonesian coal miner PT Indika Energy Tbk and commodities trader Noble Group have emerged as bidders, but two investment bankers said Indika was backing out, partly because Straits Resources would not sell at a bargain price.
Indika is in talks to buy a majority stake in engineering company PT Petrosea Tbk for $70 million, which could complicate its interest in Straits.
Another banker said Noble was losing interest, too.
Unlike many miners suffering through the financial crisis, Straits Resources is on relatively sound financial footing.
Other potential bidders include Indonesia’s PT United Tractors Tbk, which owns a coal mine in Kalimantan, Hong Kong-based bankers said.
United Tractors is looking to diversify its portfolio and is in the market to acquire a coal mine that it would fund from the proceeds of a rights issue in September, Credit Suisse said.
Analysts said Straits Asia was a prize for any suitor because it secured strong sales prices before the global financial crisis sank commodity prices.
“They are not affected by the current slump in coal prices - they locked in prices at the top of the commodity cycle,” said Lee Wen Ching of OCBC Bank. “73 percent of 2009 output is locked in at $114 per metric ton.”
And foreign bidders like Noble are wary of Indonesia’s fuzzy new mining laws, which replace work contracts with shorter-term mining permits.