Stanmore off the pace in BHP contest

Blackwater produces both thermal and metallurgical coal.

It appears there could be one more suitor to rule out in the competition for BHP’s $US3bn mines in Queensland – Stanmore Resources.

There are suggestions in the market that Stanmore Resources, which bid for BHP’s Daunia metallurgical coal mine, was the most conservative of the suitors when it came to price.

The Australian-listed Whitehaven Coal is understood to have offered to buy both the Daunia mine and the Blackwater coal mine that have been for sale through Macquarie Capital.

Peabody offered more for Daunia, and BUMA more for Blackwater, say sources.

So the choice for BHP looks like selling both mines to Whitehaven Coal in one line for a lower combined price or offloading each asset individually to the US-listed Peabody Energy and BUMA, which are offering more for the assets but are yet to firm up funding.

Apparently, BUMA has been in the market locking in banks to fund its acquisition, and both Peabody and BUMA have until September to put forward a fully funded proposal.

Market experts say taking a slightly lower offer for the assets from Whitehaven would not be a disaster for BHP, but striking a deal with suitors only for the agreement to collapse would be.

The Australian-listed mining giant has been in the position before – back in 2018 when private equity firm EMR Capital walked away from a deal to buy its Cerro Colorado copper mine in Chile for $US320m after it was unable to find funding for a transaction.

Such situations create heightened uncertainty for BHP staff and its investor base.

Some market experts say that the movement of Stanmore Resources’ share price of late was further evidence that the group was slowing in the BHP coal mine sale process.

Shares in Stanmore have been gradually on the increase since late August, closing on Wednesday at $3.11.

Chief executive Marcelo Matos has sent strong signals to the market that an equity raising is not on the cards any time soon for Stanmore Resources, which has $US70m of net cash and $US351m of debt.

It suggests that the market knows this and is rewarding the group from holding fire on an acquisition, with shares usually falling if a raising to fund a deal is up ahead.

Stanmore’s major shareholder is Indonesia’s Golden Energy and Resources with 64 per cent of the business, followed by M Resources founder Matt Latimore with a 4.8 per cent interest, and Regal Funds which owns just over 4 per cent.

Earlier in the contest, sources suggested that a sale for both mines was expected to amount to an outcome where the owners netted between $US3bn and $US5bn.

Blackwater produces both thermal and metallurgical coal and while larger and more valuable than Daunia, it has about $1bn worth of remediation costs.

The two mines are among nine metallurgical coal mines in Queensland’s Bowen Basin that are part of a 50-50 joint venture between BHP and Mitsubishi Development.

Final bids were received in the contest last month.