BHP extends coal mine sale timeline, bids due August 9

BHP is selling its Daunia and Blackwater coal mines in Queensland.

BHP is understood to have pushed back the date for final bids for its two Queensland coal mines, Daunia and Blackwater, by just over one week.

Initially, bids were due on August 1, but now DataRoom understands that suitors have until August 9 to lob their final offer.

Whitehaven Coal, advised by UBS and Bank of America; Coronado Global Resources; Peabody Energy, advised by Goldman Sachs; Yancoal, advised by Royal Bank of Canada; BUMA; and Stanmore Coal are in the contest, with the mines set to sell for a combined $US3bn to $US5bn.

The Macquarie Capital-advised BHP is considering a sale of the assets separately.

Whitehaven‘s focus is Daunia, say sources, while Coronado’s focus is believed to be Blackwater, with its own Curragh open cut coal mine, 30km north in central Queensland.

Coronado flagged in its quarterly update to the market in the past fortnight that the recently depressed dividend was to shore up its balance sheet as it looks at mergers and acquisition opportunities.

It said its mining volumes at Curragh, with 88 million tonnes of coking coal, were the strongest they had been since September 2002, with coal production of 7.2 megatonnes 37 per cent above its forecasts and 14 per cent higher quarter on quarter.

Analysts at Macquarie currently value Blackwater at about $US1.5bn.

Coronado may update investors at half-year results on August 8, and BHP when it delivers its annual earnings result on August 22.

Meanwhile, the Daunia mine, southeast of Moranbah in Queensland’s Bowen Basin, produces metallurgical coal used for making steel, which banks are prepared to finance.

Thermal coal proves a challenge for groups securing funding amid concerns about fossil fuels and their impact on the environment, but not metallurgical coal.

Daunia is close to Whitehaven’s Winchester South mine, and the understanding is that by owning both assets, Whitehaven could cut as much as 30 per cent from the capital spending requirement on its proposed open-cut coal mine Winchester South.

Blackwater is the larger, more valuable mine because it produces more coal, but because it produces thermal as well as metallurgical coal, obtaining bank funding is harder, and it has larger remediation liabilities.

They are two of nine metallurgical coal mines in Queensland’s Bowen Basin that are part of the joint venture, split 50-50 between BHP and Mitsubishi Development.

Earlier, some were betting Peabody Energy as a likely acquirer of Daunia, but it cannot have leverage at more than 1.5 times its earnings as part of the rehabilitation conditions for its coal mines in the United States.

Both Coronado and Peabody have similar challenges to Whitehaven to overcome, where they may need investors on board to raise equity.

Peabody is backed by activist investor Elliott Management, and has been focused on paying down debt with its strong uplift in cashflow from its coal mines.

It retired $US1.14bn of debt during 2022.

Whitehaven had a $2.65bn cash war chest for potential acquisitions and further shareholder returns.

Whitehaven’s largest shareholder is Fritz Kundrun, with a 6.14 per cent stake, according to Bloomberg data.

Mr Kundrun is the co-owner of global coal investor American Metals & Coal International (AMCI).

Should Whitehaven be a buyer of Daunia, some assess that even on conservative price estimates, it could cost $100m in annual interest payments on funding.

The company pointed to possibly sourcing acquisition debt from the US market, where interest rates on such loans are at more than 10 per cent.

A deal to acquire both mines would likely involve more than $2bn of borrowings, while a Daunia bid would likely involve a loan of more than $750m to continue paying dividends on 20 to 50 per cent of its net profit.

Of course, a lot also rests on the coal price that has been soaring since the Ukraine-Russia war.