BHP coal mine bidders told to get serious on funding

BHP's Blackwater coal operations. It produces both thermal and metallurgical coal and has about $1bn worth of remediation costs. Picture: BHP

Suitors for BHP’s Daunia and Blackwater coal mines are being asked to firm up their financing plans for an acquisition of the assets, expected to be offloaded for between $US3bn and $US6bn ($4.64bn-9.29bn) in the coming weeks.

Sources say a deal is still a few weeks away, with most now pointing to Whitehaven Coal as the frontrunner.

BUMA, Stanmore Coal, Whitehaven Coal and Peabody Energy are also still in the race.

BUMA has bid only for Blackwater, which generated $2.5bn in earnings last year.

The $2.6bn listed Stanmore Coal is understood to have bid for Daunia, and is known to be relatively conservative when it comes to acquisitions.

The general understanding is that Peabody Energy has also bid for Daunia.

Whitehaven is bidding for both assets.

BHP is believed to be highly motivated to offload the Blackwater mine, which is the larger. It produces both thermal and metallurgical coal and has about $1bn worth of remediation costs.

It is unlikely to part with Daunia without Blackwater, sources say, despite Daunia being more popular.

How Whitehaven funds a transaction is an issue, with some shareholders vigorously opposed to an equity raising.

They instead hope the company will return much of its $2.65bn net cash generated from booming coal prices in the past year to investors.

Whitehaven counts billionaire coal investor Ray Zage as a director. He also has stakes in BUMA through his company Farallon Capital.

He owns between 1 and 2 per cent of Whitehaven, and some suspect he may also be eager for a major capital return.

Watching with keen interest on the sidelines will be former billionaire Nathan Tinkler, who took legal action against Whitehaven after a 2016 bankruptcy that cost him most of his fortune as the coal price fell sharply.

Whitehaven merged with his company Aston Resources in 2012. At the time of that deal, Whitehaven agreed to buy Boardwalk Resources, of which Mr Tinkler owned about 80 per cent, in exchange for 85.89m in shares and an additional 34 million shares, which at the time was equivalent to about $400m.

There were payment restrictions subject to mining development approval.

Boardwalk Resources shareholders were to contribute $150m in cash for the ongoing development of the assets.

His claim centres on a breach of contract because the Australian-listed group never developed the Boardwalk assets, which would have triggered further share payments to the former coal magnate.

Soon after that deal, Whitehaven paid $200m for Coalworks and later the Winchester South coal development in Queensland $700m.

The case will be heard in the NSW Supreme Court next year, to be defended by Whitehaven.