BHP windfall opens doors on other asset sales

Speculation is growing that mining assets might generate greater interest. Picture: Bloomberg

The top dollar that BHP achieved for the sale of its Queensland metallurgical coal mines, Daunia and Blackwater, could trigger other asset sales in the sector.

The most obvious in the coal space is EMR Capital’s sale of its Kestrel mine.

The Owen Hegarty-chaired private equity firm bought its 80 per cent interest in Kestrel in 2018 for $US2.25bn with Adaro Energy, from Rio Tinto. Mitsui owns the remainder.

Kestrel is the world’s largest underground coking or metallurgical coal mine, producing about 7.1 million tonnes of coal annually that is used to make steel throughout the world and is located in the Bowen Basin in Queensland, 51km northeast of Emerald.

Many believe a move would make sense as groups continue to capitalise on the high price of the commodity, currently at $US324.30 a tonne.

South32 may now offload Illawarra Coal, while Pembroke Resources owns Olive Downs in Queensland’s Bowen Basin which may come on offer, as could Foxleigh metallurgical mine in Queensland’s Bowen Basin, jointly owned by South Korea’s Posco and Japan’s Nippon Steel.

Anglo American is a major owner of valuable coal assets in Australia, but is not believed to be a seller, as is Glencore, which is considering a spin off its interests in coal mines globally.

The price of up to $US4.1bn that Whitehaven is paying for the BHP assets is more than some expected, although the early talk in the market from those familiar with the assets was that the offers were between $US3bn and $US5bn.

Whitehaven will pay $US2.1bn upfront and $US1.1bn over three years, with the potential to outlay a further $US900m subject to various earn-out hurdles.

It is estimated that BUMA, which was only bidding for the Blackwater mine, put forward a higher offer for the asset, estimated to be about $US2.5bn.

Based on Whitehaven’s earnings from last year, a deal looks cheap, and if the coal price stays high, Whitehaven will receive lucrative streams of cashflow.

But the rehabilitation liabilities of Blackwater, currently pegged at $600m, grow to about $3bn over the next 30 years.

The valuation model shown to bidders also demonstrates that the coal product quality from the mines declines over time.

If the mines hit their targets and Whitehaven is liable for the additional $US900m, it could likely fund that payment through the 25 per cent sale of the mines to its suppliers.