Noble Group's Elman May Buy Two Indonesian Coal Mines

Noble Group's 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.