Elliott in line for BHP’s coal assets

BHP is looking for a buyer for its coal assets. Picture: AAP Image

Elliott Management Corporation has emerged among the short-listed parties in the running to buy BHP’s portfolio of coal assets that were last year valued at as much as $7bn.

BHP has recently short-listed parties to buy its coal mining portfolio, and the understanding is that Elliott is now in the final stages of the competition.

Elliott is believed to be competing for the assets with the US listed coal miner Peabody Energy, of which it owns about 30 per cent.

The understanding is that its offer involves some cash, but may be by way of a creative structure which sees the coal assets wind up within the Peabody Energy business.

Australian listed coal miners New Hope and Whitehaven Coal put in offers in the first round of the competition, but they were for only part of the business.

Other parties based in Indonesia are also said to be involved, with some groups working with partners such as contractors.

Possible candidates could include Indonesia’s Golden Energy, which controls Stanmore Coal, or thermal coal exporter Adaro Energy.

The understanding is that “Black Funds” committed to offering clean energy solutions for the assets like Trafigura are not in the final mix.

BHP is looking at a sale or a demerger of the assets as part of a commitment to diversify away from the coal industry, which is not seen in a favourable way by investors, worried about their impact on the environment.

On offer is BHP’s Mt Arthur thermal coalmine in NSW, the stake it owns in its Cerrejon thermal coal mine in Colombia and two metallurgical coal mines in Queensland held as part of an alliance agreement with Mitsui Coal known as BMC.

Most believe that the Colombian coal mine will be a tough sell and that the contest will largely focus on the Australian assets.

While the portfolio was valued at about $7bn last year, most think that the assets would be offloaded for $2bn at the most.

However, weighing in BHP’s favour is that thermal coal prices have recently shot to a record high, which will add some momentum to the process, despite most banks shying away from providing funding for the commodity, which is expected to be less in demand over the long term as renewable energy increasingly becomes a power alternative.

Elliott is also a BHP investor, with a holding of about 5 per cent and is the activist group that lobbied for the global mining giant, listed in Australia and Britain, to abandon its dual-listed structure and put pressure on the company to sell its shale gas assets in the US.

The thinking is that most of the cash for a deal would come from Elliott, with Peabody’s market value only at about $US800m ($1.03bn).

Peabody had earlier entered Chapter 11 bankruptcy, although its Australian portfolio of coal assets was quarantined from the action.

Elliott, which has $US41.8bn of assets under management, has been closing in on Australian coal assets of late, buying a half share in the world’s largest mining services provider Thiess from Cimic, which services the industry, and acquiring debt in Western Australia’s coal fired Bluewaters Power Station with help from law firm Corrs Chambers Westgarth.

DataRoom understands that final bids are due at the end of July for the portfolio.

Working on BHP’s coal assets has been Macquarie Capital, UBS, Goldman Sachs and JPMorgan.

Newcastle coal, which is used to fire power stations, recently hit $US123.75 a tonne, the highest level since 2011 and up 150 per cent in the past nine months alone.

This was after it slid to $US48 a tonne in September.