(Repeats story filed Nov. 13, with no change to headline or
*Rio Tinto to get about $520 mln from Cloud Peak IPO
*Sales at coal producer Cloud Peak rise, but demand wobbly
*Cloud Peak valuation is high compared to peers
By Phil Wahba and Clare Baldwin
NEW YORK, Nov 13 Anglo-Australian miner Rio
Tinto Plc (RIO.L)(RIO.AX) is hoping to raise $520 million by
spinning off its U.S. coal business, but analysts cautioned
that demand for the offering could be tepid.
The IPO is priced at a premium compared with competitors.
And Cloud Peak plans to issue $600 million in notes at the
same time as the IPO, which will bring its total debt load to
On top of that, global demand for coal has plummeted and the
outlook is cloudy.
Rio Tinto is weighed with debt stemming from its 2007
acquisition of Canadian aluminum maker Alcan, and plans to take
most of the initial public offering's proceeds.
The Anglo-Australian company has tried to sell a stake in
Cloud Peak before. The company filed for its IPO last year but
postponed it, citing difficult market conditions.
Cloud Peak expects to sell 30.6 million shares for between
$16 and $18, each, and list them on the New York Stock Exchange
under the symbol "CLD"
But investors will be paying for that performance. In a
research note, IPOdesktop said that at the $17 midpoint
per-share price, Cloud Peak would trade at a premium over
rivals such as Western Coal WTN.TO and Grande Cache Coal.
GCE.TO That assessment is based on price-to-earnings ratios
for the first nine months of 2009.
According to the prospectus Rio Tinto is using the proceeds
from the sale to bolster its own balance sheet instead of
investing in the Cloud Peak business. The Anglo-Australian
miner will retain 48.3 percent of the company.
"Investors are definitely going to pause and say 'Is this
just opportunistic timing for the parent or is this really a
company worth owning?'" Nick Einhorn, an analyst with
Connecticut-based investment firm Renaissance Capital said on
However, Morningstar senior equity analyst Michael Tian was
more positive about the IPO saying that Cloud Peak has a strong
position in the rich Wyoming and Montana coal mining area.
"The very thick coal beds are close to the surface and that
makes it the cheapest coal to extract," said Morningstar senior
equity analyst Michael Tian on Friday.
Tian said the relative lack of competitors in the region,
called the Powder River Basin, give it some protection against
fluctuations in coal prices.
And Cloud Peak has turned in solid results recently. It
reported revenues of $1.06 billion in the first nine months of
2009, up 17.4 percent from $904.6 million a year earlier, with
a profit of $190.1 million -- up more than 636 percent from
$25.8 million a year earlier.
Demand for the coal is difficult to forecast. The U.S.
government's Energy Information Administration estimated that
demand for coal in the electric power sector had decreased by
8.3 percent in the year ended in August 2009. The EIA forecast
a mild pickup in 2010, according the filing for Cloud Peak's
Demand from steelmakers, also large consumers of coal,
seems to have improved. According to a report earlier this week
by boutique investment bank Dahlman Rose & Co, seven of the
nine major U.S. coal miners beat earnings expectations in the
third quarter on improved demand from steelmakers.
But demand for coal does tend to rise and fall with the
economy, which adds an element of risk to the business.
Ideally, the company would help offset that risk by borrowing
less, but Cloud Peak plans to issue $600 million in notes at
the same time as the IPO, bringing its total debt load to $760
Representatives for the companies were not immediately
available for comment.
Cloud Peak will have nearly 0.7 times as many liabilities
as equity, compared with about 0.4 times for Western Coal.
"For a company in a very cyclical industry like coal, the
more debt you have, the more risky it makes you," Einhorn
(Reporting by Phil Wahba and Clare Baldwin; editing by Carol