Whitehaven wins BHP coal mines in $6.4bn deal

Whitehaven Coal has won the bid for two giant Queensland coal mines in a multi-billion dollar deal despite opposition from a powerful group of shareholders.

BHP coal Daunia operations in central Queensland. Picture: BHP

Whitehaven Coal will buy two giant Queensland coal mines in a $6.4bn deal that tilts its exposure to steel production while drawing criticism from a major activist shareholder on valuation concerns.

The coal producer said the deal to acquire BHP’s Daunia and Blackwater mines would transform the company into a leading supplier of metallurgical coal for key export markets.

The deal comes despite a high-profile campaign by UK-based Bell Rock Capital, a major shareholder that is lobbying for capital to returned to investors rather than invested in “risky’ assets.

Whitehaven chief executive Paul Flynn said the buyout transformed the company, almost doubled its workforce and delivered substantial value for shareholders. Whitehaven will now earn about 70 per cent of its revenue from metallurgical coal.

“The acquisition will pivot our portfolio towards metallurgical coal, which has been a core pillar of our strategy for many years making this a better balanced business,” Mr Flynn said. He added Whitehaven’s thermal coal business, a commodity used for power generation, remained strategically important to support the global energy transition and as customers seek high quality fuel to limit their emissions.

“This is a highly attractive acquisition, with considerable upside potential, which we expect will deliver meaningful returns to our shareholders for many years to come,” he said.

BHP in its quarterly update on Wednesday announced Whitehaven as the preferred bidder for the mines as part of the divestment of some of its Queensland coal assets. Whitehaven climbed 11.5 per cent to close at $7.57 after the announcement.

Mr Flynn said the market reaction to the announcement had underscored the company’s view that it had paid a reasonable price for the mines and that the deal was “compelling”  “Bell Rock may also form that view over time,” said Mr Flynn.  Bell Rock Capital chief investment officer Mike O’Mara said Whitehaven must guarantee the “deal will be a clear positive for shareholder value.”

Whitehaven Coal chief executive Paul Flynn. John Feder/The Australian.

“Anything less is a license to destroy shareholder value,” said Mr O’Mara. “It’s a simple proposition. The deal must be superior to the value on offer in the company’s own share.

“Finally, it is vital that this transaction, if it is to proceed, is put to a vote of all Whitehaven shareholders, given the company has provided no information prior to entering this deal.

“We have raised our concerns about the transformative nature of this proposed transaction with the ASX.”

Whitehaven said it did not need shareholder approval. Mr Flynn said Daunia and Blackwater produced much-needed metallurgical coal that is in high demand across Asia – including in India and Southeast Asia where population growth and economic development is expected to drive strong demand for steel production and metallurgical coal through to at least 2050.

“This acquisition will increase our exposure to these high growth market segments while expanding our regional footprint through new customers,” he said. Whitehaven’s total workforce will increase from 2750 to 5280 after the acquisition.

The Mining and Energy Union welcomed the deal saying it paved the way for hundreds of workers to transition from labour hire to permanent jobs.

Mr Flynn added that while funding for the deal had not been difficult, Whitehaven was considering a minority sell down to global steel producers through a joint venture.

Bell Rock Capital last week launched an advertising campaign against Whitehaven Coal, accusing the company of “destroying value” in pursuit of risky investments in the new mines. And it has asked shareholders to kibosh proposed salary packages for executives.

Bell Rock, which holds just under 5 per cent of Whitehaven, said the company had presided over a destruction of the share price in the past year while paying chief executive Paul Flynn three times more than the average salary of his peers.

BHP coal Daunia operations in central Queensland.

Bell Rock has confirmed it is behind a website called Fair Shareholder Returns that has called on Whitehaven shareholders to vote against the election of directors Nicole Brooke, Wallis Graham and Raymond Zage at the company’s annual general meeting on October 26.
Mr O’Mara, in a letter sent to shareholders, said Whitehaven Coal had dropped total shareholder returns as a metric for remuneration, exposing the company to a further loss of value. Brisbane-based mining contractor BUMA says it’s disappointed it missed out on the bid for Daunia and Blackwater to Whitehaven. In a note to staff, chief executive Colin Gilligan said the firm’s bid for the Queensland mines was “very competitive and well funded.”

“This decision .. to opt for Whitehaven is not a reflection of our capability to successfully take control of Blackwater,” said Mr Gilligan. BUMA said that from an initial field of 25 parties it made the final two.

Originally published as Whitehaven wins BHP coal mines in $6.4bn deal