Stanmore Resources will pay up to $1.83bn for BHP coal assets

Stanmore will become a major player in Queensland’s coking coal sector through ‘transformational’ BHP asset buy.

A giant dragline crossing the Peak Downs Highway at the South Walker Creek coking coal mine.

Stanmore Resources will pay up to $US1.35bn ($1.8bn) to acquire BHP’s 80 per cent share of two Queensland coking coal mines in a deal that will transform the company into a significant player in the Australian coal sector.

The deal is worth more than six times Stanmore’s $280m market capitalisation, and will add about 9 million tonnes of additional coking coal production to Stanmore’s output.

Under the deal, Stanmore will acquire BHP’s share of the South Walker Creek mine, which produces PCI coal – a lower-quality coking coal used in steel mills – and the Poitrel mine, which produces a mix of hard coking coal and PCI.

It will also acquire the undeveloped Wards Well underground coking coal mine.

Together the assets, previously operated under the BHP Mitsui Coal (BMC) banner, booked revenue of $US989m and EBITDA of $US217m in the 12 months to the end of September, Stanmore said.

BHP put its BMC mines on the market in August last year, as metallurgical coal prices plunged due to China’s bans on the import of Australian coal.

But coking coal prices have since surged to record levels after trade routes were reshaped around the Chinese bans, and as demand for steel jumped through huge government stimulus packages to help with the recovery from the global pandemic.

Stanmore will pay $US1.1bn for the operating share of BMC, plus another $US100m six months after the deal completes. The agreement also includes a price-linked revenue-sharing clause that could result in Stanmore paying another $US150m over the first two years of its ownership of the mines, subject to average ­realised prices.

The coal miner will take on a $US625m debt facility to pay for the acquisition, with the debt ­secured against the assets, rather than Stanmore’s own balance sheet.

Stanmore will also run a renounceable rights issue, partially underwritten by Indonesia’s Golden Energy and Resources – Stanmore’s majority 73 per cent shareholder – to top up its cash balance to close the acquisition.

Chief executive Marcelo Matos expects the deal to complete by mid-next year.

While he expected it to take some time to digest the major acquisition, Mr Matos said Stanmore was still on the lookout for further opportunities that might flow from BMC’s assets.

“I think that this move puts us in a very interesting position in terms of infrastructure. We’re going to have two very large wash plants and regional infrastructure,” he said. “Some players are exiting, there are other undeveloped projects in the basin and a lot of them are nearing construction. So definitely we want to grow ­further. Our shareholders have that interest, that’s why they are backing this deal.”

BHP Minerals Australia president Edgar Basto said the transaction delivered value for the company, and certainty for BMC employees. “As the world decarbonises, BHP is sharpening its focus on producing higher-quality metallurgical coal sought after by global steelmakers to help increase ­efficiency and lower emissions,” Mr Basto said.

The acquisition will also be a major boost for the privately owned coal marketing company of Queensland businessman Matt Latimore, M Resources – which is a 15 per cent shareholder of Stanmore and holds the exclusive marketing rights to market the company’s coal.

Mr Latimore’s MetRes is also involved in a joint venture with Stanmore at the newly opened Millennium coal mine, which washes its output through Poitrel’s processing facilities.

While M Resources has not yet indicated whether it will take part in Stanmore’s capital raising, Mr Latimore on Monday said he welcomed the BMC acquisition as a boost to both the future of Stanmore and that of M Resources.

“The acquisition will significantly increase the scale and product options to customers of coking coal and PCI. This is a high-quality, long-life, low-cost-of-production asset,” he said.

RBC Capital Markets analyst Kaan Peker said the BMC assets had fetched less than his $US2bn valuation, probably on rising costs at the two mines. “The difference between our valuation and announced sale consideration is higher costs. Stanmore Resources has indicated South Walker Creek cash (production) costs of about $US70 a tonne and Poitrel of about $US80 a tonne for FY22 (average for BMC is about $US75 a tonne),” he said in a client note.

Stanmore shares rose 14 per cent to $1.18 on Monday. BHP rose 0.8 per cent to $36.38.