Asset swap but sans Donaldson
Macarthur Coal's proposal (announced 22 December 2009) to acquire Noble's Australian coal assets will now be without Donaldson Coal. Noble will still end up with 24% of Macarthur Coal's enlarged equity base but without the A$175m cash proposed under the earlier structure. The deal is still positive as it does consolidate some of Noble's key coal assets into a visible listed entity and help it drive overall trading volumes, especially in the energy segment.

Growing its “marketing” influence
Speaking with the company, MRE understands that Noble, under the updated proposal, will also provide strategic/logistics advice and services to Macarthur Coal's New South Wales coal assets. Noble will develop Donaldson itself – Donaldson ex its mines is also a valuable option for Noble as it has volume rights at NCIG. This updated proposal will still help it drive volumes at Noble's core energy segment. Energy segment volumes made up 38% of Noble's total 3Q09 volume.

Agriculture assets next?
This, though, is not the end of the asset-consolidation process – MRE would also highlight Noble's asset base in agri-related avenues as the next bulk of assets that could see similar treatment. Noble owns grain loading ports, soy and cane crushers as well as sugar/ethanol plants across South America. While these investments have helped Noble to form a strong pipeline (especially over key chokepoints) across the respective supply chains, there is opportunity for Noble to extract equity but while still being able to exercise sufficient control.

Looking for more strategic/distressed assets
Noble is now essentially un-geared (adjusted for working capital) post the injection of US$646m in fresh capital from China Investment Corp (approximately 11% of the enlarged share base) – implying there are plenty of resources for Noble in terms of M&A of strategic/distressed assets. Noble also recently extended the duration of its debt portfolio, with two-thirds of its debt portfolio's duration in excess of 2.5 years.

Action and recommendation
MRE believes that Noble is well on its way to extracting value from its portfolio of coal assets. Volumes though remain as the key driver for FY10. MRE expects 2H09 group tonnage to grow 37% YoY to ~88mt (ie, HoH volume trends remain flat), to bring FY09 volumes to 180m tons. MRE expects overall volumes to grow 13% in FY10 to 203m tons.

MRE has an Outperform rating on Noble Group and a 12-month target price of $3.30.