Coal miner New Hope (ASX:NHC) wants to buy Anglo American’s five coal mines in Queensland but is seeking a significant discount due to the fire damage at the Grosvenor underground operation.
New Hope, which reported a sharp decline in revenue and earnings for the year to July on Tuesday, believes that the unknown cost of repairing and bringing Grosvenor back online (and the time required to do so) will justify a lower sale price.
New Hope's CEO, Rob Bishop, submitted a preliminary bid for the coking coal mines this month after Anglo American announced it would begin accepting offers.
Coking coal prices have dropped since the fire on June 29, and the outlook remains uncertain, tied to the health of the Chinese steel industry, even though Australian companies do not export coking coal for Chinese steelmaking. Major markets for Australian coking coal include Japan, Taiwan, South Korea, and India.
As of June 30, New Hope had $A824.5 million in available cash, and in July, it completed a $A300 million offering of senior unsecured convertible notes due in 2029.
"We want to make sure we have the firepower to execute if we see something attractive in the market," Bishop said on Tuesday.
"We’re not desperate. It depends on what type of assets come up," he added, noting that New Hope had submitted a bid for the five metallurgical coal mines Anglo American is selling.
First-round bids for the Anglo mines were due by September 9, as Anglo takes initial steps to simplify its operations after rejecting a $US49 billion takeover offer from BHP earlier this year.
A multi-billion-dollar bid would require New Hope to raise additional funds, leading to a substantial capital raising, which would force its major shareholders—Washington H. Soul Pattinson and its largest shareholder, Brickworks—to make difficult decisions regarding the size and nature of the raising and how much of their equity they are willing to dilute.
As of Tuesday’s close, New Hope had a market value of $3.65 billion, and a serious bid for the Anglo mines would require a mixture of funding options to avoid significant dilution of existing shareholders.
Before the fire, the suggested price for the mines exceeded $US5 billion, but bringing Grosvenor back online could cost up to $1 billion, especially if a new mine needs to be constructed, similar to Peabody’s experience with its North Goonyella mine. After a fire there in 2018, North Goonyella was abandoned, and a new mine, Centurion, was built using coal reserves purchased from a neighbouring miner.
