doyle trading companyʼs lunch and q&a
TRANSCRIPT
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DOYLE TRADING COMPANY’S LUNCH AND Q&A
Doyle Trading Company Lunch | December 3, 2012 | Princeton Club, NY, New York
W. Douglas Blackburn, Jr
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W. Douglas Blackburn, Jr “The Dog That Didn’t Bark”
SILVER BLAZE
Sir Arthur Conan Doyle
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W. Douglas Blackburn, Jr
Location of ILB Mines
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W. Douglas Blackburn, Jr
RAILROADS/FORESTRY COMPANIES STEEL COMPANIES UTILITIES OIL COMPANIES FINANCE INTERNATIONAL STEEL QUERY: NEXT UP? INTERNATIONAL MINING HOUSES?
IN THE BEGINNING
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W. Douglas Blackburn, Jr
NOT SO FAST INTERNATIONAL COST CURVE FOR COALS DELIVERED TO ASIA
TAX POLICY INCLUDING CHANGES TO CAPITAL GAINS
LIABILITIES:
ENVIRONMENT: AIR/WATER
UNITED MINE WORKER TRUST FUNDS
RETIREES/MEDICAL
RECLAMATION
BLACK LUNG
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W. Douglas Blackburn, Jr
WHY M&A IS SO UNSATISFYING? A. KNOWLEDGEABLE (MINING) MONEY HELD IN AUSTERITY PROGRAMS B. NON-MINING MONEY: “COAL IS DEAD” C. WHY BUY AN UNCOMPETITIVE CLOSED PROPERTY IN A SHRINKING MARKET D. STRATEGY: PORTER MATRIX*
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W. Douglas Blackburn, Jr
PORTER MATRIX* OPERATIONAL EXCELLENCE
PRODUCT DIFFERENTATION
DOMINATE NICHE
COMPETITORS THREAT OF NEW COMPETITORS THREAT OF SUBSTITUTES BARGAINING POWER OF SUPPLIERS BARGAINING POWER OF CUSTOMERS
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W. Douglas Blackburn, Jr
HOTEL CALIFORNIA: “YOU CAN CHECK OUT BUT YOU CAN NEVER LEAVE”
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W. Douglas Blackburn, Jr
“THE ONLY THING WORSE THAN 0UR BARRIERS TO ENTRY ARE OUR BARRIERS TO EXIT.” A. ARCH (ACI): ICG ASSET SALE FAILED IN 2012 B. CONSOL (CNX): ELKCREEK/ITMANN/AMONATE ASSET SALE FAILED 2011 C. ALPHA NATURAL RESOURCES (ANR): KY THERMAL PROPERTIES ASSET SALES
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W. Douglas Blackburn, Jr
06-13
WHO IS SATISFIED WITH THEIR INVESTMENT?
A. SEVERSTAL: $1B FOR PA LOW-VOL OPERATOR (PBS)
B. ESSAR: $600M FOR WV MET/EKY THERMAL (TRINITY)
C. ARCH (ACI): $3.4B FOR ICG
D. ALPHA NATURAL RESOURCES (ANR): $7.1B FOR (MEE)
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W. Douglas Blackburn, Jr
WHO IS SATISFIED WITH THEIR INVESTMENT ?
E. MECHEL: $900M FOR BLUESTONE
F. WALTERS ENERGY (WLT): $1.1B WRITEOFF FOR WESTERN FUELS G. JAMES RIVER (JRCC): $475M FOR IRP
H. CLIFFS (CLF): $757M FOR INR
I. PEABODY: 10.5X FUTURE EBITA FOR MACARTHUR COAL (AUS)
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W. Douglas Blackburn, Jr
WHY DON’T ACQUISITIONS WORK?
COMMODITY CYCLE
A. TIMING
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W. Douglas Blackburn, Jr
WHY DON’T ACQUISITIONS WORK?
B. INHERENT VOLATILITY OF COMMODITIES 6 MONTHS TO CLOSE; PRICE CAN CRATER C. FINANCING VALUATIONS; BANKS DON’T LIKE THIS RISK D. POLITICAL RISK
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W. Douglas Blackburn, Jr
WHY DON’T ACQUISITIONS WORK?
E. RECENCY FALLACY
F. DISCIPLINE: SAVE CASH DURING GOOD TIMES; BUY ASSETS AT BOTTOM
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W. Douglas Blackburn, Jr
G. CULTURE CLASH
H. NEMESIS FOLLOWS HUBRIS
WHY DON’T ACQUISITIONS WORK?
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W. Douglas Blackburn, Jr
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W. Douglas Blackburn, Jr
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W. Douglas Blackburn, Jr