Peabody Energy preferred bidder for BHP coal assets: sources

An outcome on the sales process of its coal assets could be known next week when BHP delivers its full year results. Picture: Bloomberg

New York-listed Peabody Energy is believed to have reached preferred bidder status in the competition to buy BHP’s coal mining assets.

Sources say that other Indonesian groups that had been considering an acquisition of the portfolio, estimated to be worth about $2bn, have stopped working on a transaction for now.

The understanding around the market is that this has put Peabody in pole position and the St Louis-based group that is advised by Bank of America and Amicaa remains in talks with the mining giant about an acquisition, in an indication that it has become the preferred bidder.

Some suspect that an outcome on the sales process will be known next week when BHP delivers its full year results.

Peabody was earlier said to be competing for the portfolio with Indonesia’s BUMA and Sinar Mas Group – the controlling company of Golden Energy in Singapore, which owns most of Australia’s Stanmore Coal – and New Hope, which had been ushered through to the second round later than other parties after it initially had been culled.

Australian listed coal miner Whitehaven Coal did not make it past the first round of the competition.

Final bids were due at the end of last month.

On offer are BHP’s Mt Arthur thermal coal mine in NSW and two metallurgical coal mines in Queensland held as part of an alliance agreement with Mitsui Coal, known as BMC.

The expectation is that Peabody will take on the entire portfolio, with earlier talk in the market that a transaction involving at least some scrip could be in the works, although some say that New Hope is not to be ruled out as a buyer of Mt Arthur thermal coal mine.

BHP in recent weeks announced the sale of its stake in the Cerrejon thermal coal mine in Colombia to existing owner Glencore.

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

The BMC metallurgical coal assets are considered the more favourable part of the portfolio.

Peabody Energy is about 30 per cent owned by Elliott Management in the United States.

Elliott is also a BHP investor, with a holding of about 5 per cent, and it 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.

Coal prices are currently soaring, with analysts from Macquarie attributing the strong performance to China being “very short of coal” and more of the commodity being used in Europe due to a “dangerously low” gas supply and soaring prices.

The Newcastle thermal coal price on August 6 was up 2.4 per cent to $US160.95 and the Australian premium coking coal futures closed at $US218.75.

Normally this would help BHP command a strong price for the assets.

But institutional investors and major lenders are not keen to back coal companies due to the damage it causes to the environment through emissions from the burning of coal.

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

Elliott, which has $US41.8bn ($55bn) worth of assets under management, has bought a half share in the world’s largest mining services provider, Thiess, from the Australian listed CIMIC, which services the coal mining industry, and debt in Western Australia’s coal-fired Bluewaters Power Station.