Peabody’s $5.8bn bid for Anglo American gets Japanese boost

Coal miners are thought to have made advances to Anglo American and Peabody Energy to be part of a transaction agreed to last year.

Japanese steel makers Nippon and Mitsui are expected to step in to assist Peabody Energy in completing a deal to buy Anglo American’s Queensland coal mines for $5.8bn, say sources.

The news comes as coal miners, including the Australian listed Stanmore Coal, are thought to have made advances to both Anglo American and Peabody Energy eager to be part of a transaction that was agreed between the pair in 2024.

Since that time, the coal price has come off the boil, and Peabody and Anglo American are in dispute over the transaction.

Peabody indicated it may be exploring options over whether it can extract itself from the Anglo American deal after another fire occurred at the Moranbah North mine in Queensland.

This followed the Grosvenor coal mine explosion and fire last year.

Peabody argues the event paves the way to extract itself from the transaction, but Anglo American argues the opposite, in a dispute that could wind up being settled by the courts.

The share price of the US-listed Peabody Energy has fallen dramatically since the deal was agreed – down 30 per cent since the start of the year – and with funding costs also increasing on the back of the plunging coal price, some suspect that the St Louise-based miner is no longer in such a strong financial position to complete the transaction.

The understanding is that groups such as Stanmore Coal have offered to buy some assets at a lower price, while steel makers like Nippon and Mitsui were offering to buy stakes in the assets.

Nippon and Mitsui are existing part owners in the assets.

The metallurgical coal price has been trading at about $US180 a tonne after trading above $US200 a tonne when the deal was reached.

Peabody had $US1bn ($1.6bn) of liquidity in December, and the purchase at the time was financed by a $US2bn ($3bn) bridging loan provided by KKR and Jefferies.

Peabody wound up in Chapter 11 bankruptcy in 2016 after paying too much for acquisitions only for the price of coal to collapse.

The company became a major force in the Australian coal market following its acquisition of the Macarthur Coal portfolio in 2011.

The play for Peabody Energy on the Anglo American transaction was to reweight its portfolio more towards metallurgical coal and away from thermal coal.

Peabody agreed to a cash consideration of up to $US3.8bn, including $US2.05bn at completion and a deferred cash consideration of $US725m, plus the potential for up to $US550m in a price-linked earn-out and a contingent cash consideration of $US450m linked to reopening the Grosvenor mine.