South32 may revive plans to offload Illawarra Coal

South32 could be prepared to place its $1bn metallurgical coal operations on the market.

There is renewed speculation in the market that South32 is considering placing its $1bn metallurgical coal operations on the market.

Illawarra Metallurgical Coal operations are in the Illawarra and Macarthur regions of the southern coalfields of New South Wales, about 75km south of Sydney.

The asset produces premium-quality hard coking coal at its Appin and Dendrobium underground mines for steelmaking within Australia and around the world.

The coal is processed at its West Cliff and Dendrobium coal preparation plants before being transported by rail to the Port Kembla coal terminal, managed by South32 on behalf of a consortium.

Illawarra Coal produces 5497 kilotonnes of metallurgical coal annually.

Earlier, expectations were that the operation could be worth more than $1bn, and there was chatter about a year ago that a sale by South32 could be on the agenda.

South32 was thought to have high hopes for its Dendrobium mine, but the project had to be scaled back due to its proximity to Sydney’s water catchment.

Because Dendrobium is not to be the scale South32 had hoped for, it does not make strategic sense for the $17bn miner to own an asset of such size.

Both Dendrobium and Appin have a limited life span, and given their age they also require capital spending.

Whether it launches a sale process depends largely on whether it can secure the price it hopes for.

Some suspect it will wait until the outcome of BHP’s sale process for its Queensland coal mines Daunia and Blackwater, worth more than $US3bn combined, before beginning a sale process.

South32 reports its full-year results on Thursday, as does Whitehaven Coal – one of the competitors for BHP’s coal mines for sale, for which final bids were received earlier this month.

Sources believe an outcome on the BHP sale could be some time away, and most predict that Daunia could be sold first as it has attracted stronger demand.

Like other major mining groups, South32’s focus is on commodities linked to the energy transition, with copper assets particularly attractive to the miner.

It has been bidding for the Khoemacau copper mine in Botswana with RBC as its adviser.

Big listed companies like BHP and South32 are staging an exit from coal, while Rio Tinto sold out of its coal mining operation several years ago.

BHP sold its BMC metallurgical coal business in Queensland to Indonesia-backed Stanmore Coal for $US1.2bn ($1.7bn) in 2022, but opted to retain its Mt Arthur NSW mining operation after offers came in below expectations. It continues to generate strong cashflow.

The metallurgical coal price has held steady at about $US257.50 a tonne.

Meanwhile, as an example of strong demand for battery metals, lithium miner Azure Minerals was said to have received overwhelming demand for its $120m raising announced this week. Its shares were trading above its $2.40-per-share offer price, closing at $2.71.