Why Sev.en abandoned its Coronado coal deal

The price of coal is down in the past year as Sev.en walks away from a deal to buy a stake in Coronado Global Resources. Picture: iStock

An agreed deal for the Houston-based private equity firm Energy and Minerals Group to offload its 51 per cent stake in Coronado Global Resources to Sev.en Global Investments is off, but it’s understood to be more to do with price than regulatory challenges.

It comes after DataRoom flagged in April the deal was in doubt as price became an issue.

The understanding is Sev.en made a request for the financial terms to be renegotiated to EMG, but the latter declined.

EMG said in a statement on Tuesday The Foreign Investment Review Board did not give regulatory clearance for the transaction, but some suspect this could be because Prague-based Sev.en deliberately dragged its feet over providing the information needed so the approval could not be provided within the time frame.

Coronado announced in September, subject to regulatory approvals, Czech investor Sev.en was buying a majority stake in the $3bn-plus Australian listed coal miner from The Energy and Minerals Group, which floated the business on the Australian Securities Exchange in 2018.

At the time, Coronado’s shares were trading at between $1.50 and $2 and it was worth more than $3bn.

Shares on Monday closed at $1.19 with its market value at $2bn.

Coronado was founded in 2011 by EMG, Garold Spindler and James Campbell.

It grew through a series of acquisitions in Australia and the United States, including the Curragh coal mine in Queensland in 2017 for $700m.

Coronado floated the following year, but on the first day of trade its share price finished down 10 per cent with its market value at $3.5bn.

It currently produces more than 16 million tonnes of coal and wants to produce 20.5m by 2025.

Since the transaction was announced, the price of metallurgical coal — the type of coal produced by Coronado which is used to make steel — and the price of thermal coal have both fallen.

Metallurgical coal hit highs of around $US300 per tonne in September last year and is now at $US249 per tonne, while the thermal coal price has fallen about 11 per cent in this time frame.

EMG has long been known to be a seller out of Coronado, but the share price of the group has failed to gain strong momentum as institutions broadly shun coal-related equities, and so it has retained its holding.

While on the bourse, the coal price has soared in recent years amid the war between Russia and Ukraine which led to power shortages in Europe, prompting a number of coal companies to make attractive dividend payments due to strong earnings.

Sources had previously said EMG is unlikely to offload its interest via a block trade and a more likely outcome is it waits until the coal price and the share price improves before staging an exit at a price it finds comfortable.

The Australian reported at the time the argument for the acquisition by Sev.en was, given the energy transition would take longer than expected, coal would remain in need.

Sev.en, a family-owned business, has moved aggressively to acquire coal mines and coal-fired power plants in its homeland before expanding into Britain and the US.

The purchase of the 51 per cent stake in ASX-listed Coronado would have been Sev.en’s third major investment in Australia’s fossil fuel industry, headlined by its acquisition of the Vales Point coal power plant — which it said could run longer than previously scheduled.

Coronado entered talks to merge with Peabody Energy in 2022, but the deal never proceeded after Peabody objected to the terms.

Meanwhile, also being closely watched is South32’s sale of Illawarra Metallurgical Coal to Stanmore Coal backer Golden Energy Resources and Matt Latimore’s M Resources.

There had been suggestions funding could be an issue, and the deal may be hanging in the balance.

South32 confirmed the transaction remains on track to be completed in the first half of the 2025 financial year subject to satisfaction of the remaining conditions, including Foreign Investment Review Board approval.