The Australian coal industry underwent a record year of consolidation in 2011, with $19.5 billion worth of completed or pending deals at year’s end. And this year, the industry could undergo further consolidation driven by bargain hunters hoping to take advantage of beaten-down shares.

Australia is the leading global exporter of coal, and roughly 88 percent of the demand for this key commodity derives from five Asian countries. Based on 2010 data furnished by the Australian Coal Association, Japan consumes nearly 40 percent of Australia’s coal exports, while China (14.5 percent), South Korea (13.9 percent), India (10.9 percent) and Taiwan (9 percent) account for most of the balance.

Global coal shares have dropped due to a slowdown in Chinese demand, as well as fear that an abundance of cheap natural gas will supplant the use of thermal coal for power generation in the US. As evidence of coal’s decline, Market Vectors Coal ETF (NYSE: KOL), which has a 7.6 percent weighting in Australian names, trades near its 52-week low, down 48.1 percent over the trailing year.

The relatively strong Australian dollar has also hurt overseas demand for this important export commodity. Additionally, the industry faces two new taxes that could impair miners’ ability to invest in new projects and expand existing ones amid an already weak macro environment. An AUD23 per tonne carbon tax as well as a 30 percent tax on profits that exceed AUD75 million will be imposed on select firms in the energy and basic materials sectors starting July 1. The capital-intensive industry is already contending with a steep rise in production costs, as the capital required to produce one metric ton of thermal coal has risen 25 percent annually since 2007.

But one of Australia’s more colorful billionaires sees opportunity in the industry that helped make his fortune. Nathan Tinkler began his career as an electrician in the coal industry, but then later borrowed AUD500,000 in 2006 to buy a stake in a coal mine (alongside Chinese investors) that other industry players assumed held no promise. A little more than a year later, Tinkler sold his mine to Macarthur Coal for AUD275 million. He was barely in his thirties at the time.

Since then, Tinkler’s privately held Tinkler Group has done numerous deals and assembled a diverse portfolio of companies involved in resources, infrastructure, real estate and even horse breeding (the latter perhaps a signifier of a billionaire parvenu’s aristocratic aspirations). In addition to his investing prowess, Tinkler has a legendary temper, once belittling a journalist by declaring, “You climb out of bed every morning for your pathetic hundred grand a year, good luck.”

Last year, Tinkler announced deals to sell two of his firm’s holdings to Whitehaven Coal (ASX: WHC), the leading coal producer in Australia’s Gunnedah Basin. Whitehaven bought Aston Resources for AUD2 billion and Boardwalk Resources for AUD520 million. After the deals closed in early May of this year, Whitehaven became Australia’s largest coal producer pure-play.

As a result of these acquisitions, Tinkler garnered a 21.4 percent stake in Whitehaven, which makes him the miner’s largest shareholder. A little more than a month later, Tinkler is now trying to leverage his stake through an unsolicited AUD4 billion-plus bid to take Whitehaven private. Thus far, the firm has spurned his offer, and industry analysts believe Tinkler would have to offer at least a 30 percent premium to secure shareholder approval.

Meanwhile, Whitehaven itself is pursuing an acquisition of junior miner Coalworks (ASX: CWK), which holds mining acreage adjacent to Whitehaven’s interests in the Gunnedah Basin. The firm has apparently secured approval for its sweetened offer of AUD145.6 million from Coalworks’ board of directors.

Amid all this drama, what opportunities remain for the retail investor in the Australian coal industry? Given thermal coal’s flagging demand and competition with cheap natural gas, metallurgical coal, or coking coal, may be a better near- to medium-term bet. Met coal is a key feedstock for steel production. With growth forecasts of mid-single digits at best this year, the global steel industry is hardly experiencing robust demand. However, China has announced plans to accelerate a number of infrastructure projects to bolster its slowing economy. That could boost the steel market as soon as the third quarter.

One industry analyst says Australian miners that have assets in Asian countries with even greater proximity to China, such as Indonesia and Mongolia, offer a more compelling growth opportunity than purely domestic firms that must endure Australia’s rising production costs. Two of the firms tipped by Patersons Securities analyst Matthew Trivett are Altura Mining (ASX: AJM) and Cokal (ASX: CKA), both of which are developing mines in Indonesia, the former has a mine that will produce mostly thermal coal, while the latter has a mine that will produce coking coal. Of course, these are both junior miners that have miniscule market caps and are, therefore, highly speculative.

Instead, BHP Billiton (ASX: BHP, NYSE: BHP) and New Hope Corp (ASX: NHC) are far safer choices. Both are well-established names that offer attractive dividends with low payout ratios.