Mining giant South32 (ASX:S32) is selling off its Illawarra Metallurgical Coal business to privately owned Golden Energy and Resources (GEAR) and M Resources in a deal worth roughly $2.5 billion.
Under the sales arrangement, a company jointly owned by GEAR and M Resources will pay US$1.05 billion upfront for the Illawarra project plus up to US$600 million in deferred payments.
This will give the buyer full control of the Illawarra operations, with the deal slated for completion in the first half of the 2025 financial year.
However, fellow listed big-cap BlueScope Steel (ASX:BSL) currently holds pre-emption rights under a coal supply agreement with Illawarra, meaning in order for the sale to go ahead, BlueScope will need to agree to waive these rights.
If BlueScope decides to exercise its rights, South32 says it will instead divest the Illawarra Project to BlueScope under the same conditions as the potential deal with GEAR and M Resources.
In a short statement to investors, BlueScope reiterated that it had a supply agreement with Illawarra Metallurgical Coal lasting until 2032 for a blend of metallurgical coal from the Appin and Dendrobium mines.
“BlueScope has ongoing rights under the long-term supply contract, including pre-emption acquisition rights in favour of BlueScope, and the company will consider its position.”
In any case, South32 CEO Graham Kerr says the Illawarra sale will realise ‘significant’ value for the company’s shareholders, and it’s consistent with its strategy to reshape its portfolio towards commodities critical for the global transition to a ‘low-carbon future’.
“It will streamline our portfolio, strengthen our balance sheet, and unlock capital to invest in our high-quality development projects in copper and zinc.
The transaction will also simplify our business and reduce our capital intensity.”
“It will streamline our portfolio, strengthen our balance sheet, and unlock capital to invest in our high-quality development projects in copper and zinc”
Kerr adds that GEAR and M Resources are ‘established participants’ in the Australian metallurgical coal industry and are ‘well-positioned’ to continue Illawarra’s contributions to the New South Wales region’s local steel industry.
“Over the coming months, we will work with the buyer, our workforce, the local community, government, customers and suppliers to support a successful transition of ownership.”
Shares in South32 climbed 4.61% to close to $2.95 on Thursday 29 February.
Write to Joshua Smith at Mining.com.au
Images: South32
