SOUTH32 has agreed to buy a 50% stake in Eagle Downs, from Aquila Resources, a subsidiary of China BaoWu Steel Group, for an upfront payment of $106m in a transaction that supports the group’s interest in metallurgical coal whilst it divests from thermal coal.
The company is currently in negotiations to partially or completely divest of its thermal coal assets in South Africa. South32 may separately list thermal coal assets whilst retaining an interest in the entity for a period of time. This is in response to shareholder concerns regarding the impact of the mineral on climate control.
In terms of the agreement with Aquila Resources, South32 will become the operator of the Eagle Downs which is situated in Bowen Basin, Queensland. In addition to the upfront cash payment, South32 will also pay Aquila Resources $27m in a deferred payment which is due three years after conclusion of the transaction. A coal price linked production royalty capped at $80m will also be payable to Aquila.
The acquisition, which will be funded from the group’s cash reserves, is subject to conditions precedent and is expected to close in the first half of South32’s 2019 financial year, the company said. “This high quality metallurgical coal project benefits from prior investment which has the potential to support its accelerated development and deliver significant value to both South32 and Aquila,” said Graham Kerr, CEO of South32.
Earlier this week, South32 reported that due to an explosion at the company’s Appin coal mine, the New South Wales government’s Resources Regulator had issued a partial mining ban. “Whilst no one was injuried, this is likely to raise concerns over the near term guidance of the mine, especially after the recent downgrade,” said Goldman Sachs.
