Whitehaven has pitched its bid for BHP’s coking coal mines at the high end of the range

The Blackwater coal operations in Queensland.

Whitehaven Coal is understood to have pitched its bid for BHP’s Daunia and Blackwater coking coal assets at $US3.5bn, with offers for the Queensland mines due earlier this week.

The rumoured bid is slightly higher than the $US3.3bn valuation ascribed to the assets by UBS in a research note issued in mid-September, with the broker saying at the time Whitehaven was looking like the frontrunner to buy the assets, which are owned by BHP in a joint venture with Mitsubishi Development Corp.

Other potential buyers include Yancoal, Stanmore Resources, BUMA Australia and Peabody Energy.

Whitehaven has confirmed previously it is bidding for both of the mines in Queensland’s Bowen Basin, and with more than $2bn of cash on its balance sheet, has plenty of balance sheet depth to do so.

The coal miner has also told shareholders it would only acquire the assets if a deal did not dilute its earnings.

The deal offered to BHP is understood to be made up of $US1.2-$US1.5bn in debt, with $US2bn upfront and $US1.5bn deferred.

Whitehaven would not confirm or deny the rumoured offer.

UBS has ascribed a value of $US2.5bn to Blackwater and $US800m to Daunia, with about $US1.7bn to flow to BHP for its half-share once transaction and other costs are factored in.

“Our analysis suggests the sale trades on about 3.3x forward earnings before interest, tax, depreciation and amortisation, broadly in-line with coal miners over this period,’’ UBS said.

While UBS assessed the combined value of the assets at $US3.3bn it also flagged “upside risk to the sale price from higher assumed long term metallurgical coal prices, but equally point out recent history of coal assets transacting at discounts on ESG factors’’.

“Our estimate is also exposed to uncertainty in estimating rehab liabilities. We assume $US250m real at Daunia and $US1bn real at Blackwater which are expensed as cashflows at mine closure, but discounted back into our net present value at about $US55m real at Daunia and about $US35m real at Blackwater.

“The longer the mine life, the smaller discounted rehab costs are in today’s dollars.’’

UBS says the large Blackwater open pit can sustain production “far longer than five decades into the future’’, while modest mine life extensions at Daunia would stretch its life through 2040.

“We flag potential upside for a buyer in cost-out from a leaner operating model versus BHP, but note limited/nil synergies for a buyer in the region beyond economies of scale,’’ UBS says.

New Hope said recently it was not bidding for the assets.

Macquarie Capital is running the sale process.