Stanmore swoops in on Eagle Downs

Stanmore Resources (ASX:SMR) has entered into definitive agreements to acquire South32’s (ASX:S32) 50% interest in the Eagle Downs Metallurgical Coal joint venture (JV) in Queensland. 

As part of the acquisition, Stanmore will also acquire 100% shares in Eagle Downs Coal Management (EDCM).  

Stanmore, which has a $3.52 billion market capitalisation, says upfront consideration for the acquisition is US$15 million together with a US$20 million contingent payment linked to first longwall coal and a US$100 million capped royalty stream contingent to coal price thresholds. 

The company expects to fund the upfront consideration with existing liquidity and will be the majority owner and manager of the Eagle Downs JV via its acquisition of EDCM from South32.  

Concurrent with today’s (12 February 2024) announcement, Stanmore is in discussions, and has signed a term sheet, with Eagles Down JV partner Aquila in relation to acquiring a further 30% interest in the JV and reshaping the JV commercial and governing arrangements.  

However, the transaction with Aquila is subject to both parties obtaining final internal approvals and entering into definitive agreements, including a sale and purchase agreement, a revised management agreement, and a revised JV agreement.  

Aquila is a subsidiary of China Baowu Steel Group Corporation. 

Stanmore Resources Chief Executive Officer (CEO) and Executive Director Marcelo Matos says the acquisition is consistent with the company’s ambition of expanding its footprint in Queensland’s premium metallurgical coal basin. 

“Eagles Downs is a high quality project underpinned by a substantial resource base, which provides an exciting development opportunity that is complementary to our broader portfolio and in close proximity to our existing operations. 

We believe we can bring our strong technical capabilities, as well as unique infrastructure and logistics portfolio, which will enable Stanmore to unlock the full value potential of Eagle Downs and provide a capital efficient pathway for any future development decision.”

Stanmore will assume all obligations associated with potential contingent royalty payments to Vale Australia Holdings associated with the transfer, applied to 50% of all future coal sales revenues capped at US$80 million. 

The acquisition comes after an ‘extensive’ due diligence process undertaken by Stanmore with the assistance of external legal and technical advisers, and is scheduled for completion in Q2 2024 once certain limited conditions precedent are completed. 

Conditions include but are not limited to Foreign Investment Review Board (FIRB) approval, certain specific third party consents, and Stanmore acquiring the shares in EDCM. 

Stanmore also has options to manage logistics arrangements within its expanded rail and port portfolio to be able to support Eagle Downs rail and port requirements which, different than in past development attempts, are critical enablers for the project. 

Eagles Down is a high quality hard coking coal development underground project, with a substantive resource base of 1.14 million tonnes expected to produce premium low-volatility hard coking coal, in proximity to Stanmore’s existing assets. 

Being in close proximity allows Stanmore to leverage existing infrastructure and logistics capabilities to drive overall development and operating cost efficiencies at Eagles Downs.

Matos adds: “Eagle Downs also has a strong strategic fit in our portfolio, extending the life of our operations in the area given the relatively shorter mine life at Poitrel and the Isaac Plains Complex. This is in line with our commitment to developing options for expanding and increasing the longevity of our business in the area by leveraging our ‘strong’ existing infrastructure position.”

Stanmore Resources owns and operates the Isaac Plains Complex, South Walker Creek, and Poitrel metallurgical coal mines, as well as the undeveloped Wards Well, Isaac Plains underground, and Isaac Plains South projects in Queensland. 

As of 30 December 2023, the company had US$126 million cash at hand, according to its latest quarterly report.

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Images: Stanmore Resources
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Written By Adam Drought
Born and raised in the UK, Adam is a sports fanatic with an interest in Rugby League and UFC/MMA. When not training in Muay Thai and Brazilian Jiu Jitsu, Adam attends Griffith University where he is completing his final year of a Communication & Journalism degree.