Elman may buy two Indonesian coal mines

Elman may buy two Indonesian coal mines

Bernard Lo and Jason Gale, Bloomberg/Singapore

Noble Group Ltd. may buy coal mines in Indonesia, Chief Executive
Richard Elman said, expanding in a nation that is the second-
biggest exporter of the fuel to Chinese power generators.

Elman, 65, armed with US$641 million of cash as of June 30,
plans to accelerate Noble's investment in the Southeast Asian
country to add to stakes the Hong-Kong based commodities supplier
owns in mines in Kalimantan, on the island of Borneo.

Elman's plan is a demonstration of confidence in Indonesia,
where the government is trying to stem a flow of capital that
caused the rupiah to slump 7.7 percent against the dollar this
year. The currency drop was triggered by a surge in global energy
prices, which have boosted the government's fuel subsidy bill and
increased demand for dollars.

"We have always had huge confidence in Indonesia," Elman said
on Tuesday in an interview from Hong Kong. "We have always
believed in Indonesia as an economy and as a resource provider to
the world. Nothing has changed. In fact, we are going to
accelerate our interest there."

Shares of Noble rose 1 cent, or 0.7 percent, to S$1.44 on the
Singapore Exchange at 11:30 a.m. local time. The stock has gained
9.2 percent this year, less than the 12 percent increase in the
benchmark Straits Times Index. Over the past five years, Noble
shares have soared 1,683 percent, outperforming the index's 49
other members.

"Noble wants to grow the business's top line by 20 or 30
percent," said Anthony Darwell, a Singapore-based equities
analyst with Nomura Securities, who has a "buy" rating on the
stock. "To do that, they need to secure supply, with one means
being to acquire assets."

Noble has "plenty of capital to buy" assets, Darwell said.
Rising prices for coal mines may make it difficult for the
company to find acquisitions that exceed the targeted 20 percent
return on equity, he said.

Coal prices have risen to records, bolstered by demand from
China, where the economy expanded 9.5 percent in the second
quarter, causing electricity consumption to surge. Last year
China accounted for 28 percent of Noble's $8.62 billion in group
sales. The company's energy unit, which includes coal, reported a
76 percent increase in sales to $2.54 billion last year.

Buying mines that supply thermal coal would mark a new step
for the company, which has previously bought stakes in mines to
guarantee production for its coal-supply business.

"In the future, we will look to owning" one or two mines,
Elman said, adding that the company is "not going to put hundreds
of millions of dollars" into any coal acquisition.

Indonesian coal miners plan to boost output by 9.7 percent
next year to 170 million metric tons to meet overseas demand,
Jeffrey Mulyono, chairman of the Indonesian Coal Mining
Association, said last month. About 70 percent of the production
is expected to be exported, he said.

Noble, which supplied 10 percent of China's iron ore imports
last year, is adding new businesses to grab a larger share of
trade in raw materials. Elman's also considering processing
nuclear fuel after starting fertilizer, carbon emission credit
trading and ethanol businesses this year.

Last week, it said a $500 million loan facility was arranged
by a group of 34 lenders. That followed the sale in March of $700
million of U.S. dollar-denominated bonds.

"Are we looking for a major investment opportunity?
Absolutely," said Elman, whose acquisitions the past four years
include shipping, cocoa, coal and grain assets. "There are
numerous things that we are looking at."

He said the company might be close to finding a target in
uranium-processing.

"Nuclear is not a dirty word anymore. It's definitely 'green
and clean' and we believe that it's the cheapest form of energy."

Oil prices, which have soared 46 percent this year, are
"starting to take a bite," increasing inflation and sapping
demand for commodities, Elman said. Noble is still "seeing very
strong demand" for the commodities it supplies, which include
iron ore, coffee and petrochemicals, he said.