Coronado drops out of race for BHP Queensland coal mines

BHP's Blackwater coal operations. Picture: BHP

Coronado Global Resources is understood to have pulled out of the contest to buy BHP’s Queensland coal mines.

Sources say that the country’s largest miner, BHP, received high-priced bids for its two coal mines Daunia and Blackwater when they landed on Wednesday.

A source said one of the competitors that was among the six shortlisted parties had dropped out of the competition, and sources were pointing to Coronado on Thursday.

It comes after DataRoom reported that there had been talk that Coronado was slowing in its pursuit of the coal mines in the final stage of the race.

Other parties contending for the assets are Whitehaven Coal, advised by UBS and Bank of America; Peabody Energy, advised by Goldman Sachs; Yancoal, advised by RBC; Stanmore Coal; and BUMA.

Earlier, the expectation was that the mines were set to sell for a combined $US3bn-$US5bn ($4.5bn-$7.5bn).

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

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

But this week Coronado, which has coal mines in Australia and the United States, delivered a disappointing earnings result.

Morgans analysts said in a research note on Wednesday they believed it was likely Coronado exited the sale process, and the distribution of surplus cash would resume with a 60 per cent to 100 per cent Free Cash Flow payout after its first half-year dividend payout of US0.5c a share, or $US8.4m in total, was below expectations.

“We think Coronado will realistically struggle to compete on price and funding capability in the BHP process,” they said, assuming the group was bidding for Blackwater only.

The group’s operating cashflow of $US224m disappointed due to the $US74m tax payment last year and the timing of its June quarter sales.

They said an exit from the process would remove mergers and acquisitions fear, support the resumption of dividends and narrow the excessive net present value discount.

Earlier, Coronado management had signalled it remained in pursuit of the assets, yet some questioned whether it would bid for the assets with a partner.

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

The Daunia mine, southeast of Moranbah in Queensland’s Bowen Basin, produces metallurgical coal used for making steel and 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 project.

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.