The first big asset shuffle of the current resources bounce emerged yesterday when South32 (S32), the BHP Billiton (BHP) spin-off, revealed it is paying $US200 million to the bankrupt Peabody Energy for the Metropolitan coking coal mine south of Sydney.
The company told the ASX yesterday that it was buying the underground mine and its associated 16.67% interest in the Port Kembla Coal Terminal from Peabody. It will add the mine to its existing mines in the region.
These are Appin, Dendrobium and West Cliff with coal prepartion plants at West Cliff and Dendrobium. Its subsidiary, Illawarra Metallurgical Coal manages the Port Kembla Coal terminal on behalf of itself and other companies (less Peabody).
The mines produce high grade ‘hard’ coking coal mostly for the steel industry in Australia, Japan, Korea and Taiwan. A small amount of energy or thermal coal is also produced.
“The Metropolitan mine is a natural fit within our portfolio and the acquisition is consistent with our strategy to invest in high quality mining operations where we can create value,” South32 CEO, Graham Kerr said in a statement.
The deal includes a mechanism whereby both companies would split the cashflow from any sales for the first 12 months or 1.3 million tonnes of production if coking coal prices exceed the pair’s forecast prices for the four quarters of calendar 2017 of $US160, $US130, $US120 and $US115 per tonne respectively.
Prices for coking coal have more than tripled this year to more than $US250 a tonne following a tightening of Chinese supply but are expected to fall from early 2017.
Since South32 was spun out from BHP Billiton in May 2015, it has been closely watched by analysts and investors expecting it to put its strong balance sheet to work expanding its portfolio but, other than a small exploration agreement in Canada, it had remained on the sidelines.
Citi analyst Clarke Wilkins said the acquisition was a good first move for South32.
“The price paid of $US87 per tonne of capacity, before contingent value, compares to the $US83 per tonne we value their existing coking coal assets at, which at first pass seems reasonable given the costs are expected to be marginally lower than existing production," Mr Wilkins said yesterday.
South32 shares fell 1.5% to $2.58 but have jumped 140% as commodity prices – led by coal, iron ore, nickel, zinc, tin and aluminium have risen sharply this year.
