APA bets $1.8bn on decarbonising big mining

The gas infrastructure company is moving to diversify its earnings away from fossil fuels with a deal to buy Alinta’s WA assets.

The APA Group's Darling Downs Solar Farm near Dalby.

APA Group will purchase Alinta Energy’s assets in the Pilbara in a deal worth $1.77bn, as the gas infrastructure company positions itself to meet demand for renewable energy from the world’s largest iron ore exporters.

The deal, foreshadowed by The Australian, will see APA take control of a business that has a pipeline of new renewable energy projects worth more than $2bn.

APA’s chief executive Adam Watson said the projects will be sought out by companies such as Rio Tinto and BHP if they are to meet their own energy transition targets.

“The Pilbara is the biggest market in Australia and is one of the biggest in the world with some pretty impressive customers that are all trying to decarbonise,” Mr Watson told The Australian.

“We’ve made commitments as communities, we’ve made commitments as industry and companies to decarbonise and the big mining companies in Australia are very committed to it…They need to bring renewable power generation into their operations.”

The Pilbara has one of the world’s largest deposits of iron ore and large stockpiles of critical minerals such as nickel and lithium.

Under the terms of the deal, APA will acquire Alinta’s Port Hedland power station, the Newman Power Station which has a battery, the Chichester solar farm and Goldfields gas transmission pipeline, which can transport 203 terajoules of gas each day.

Many of these assets already supply WA’s major mines operated by giants such as BHP and Rio Tinto, but demand is expected to grow rapidly.

APA said it will fund the deal through raising $675m in capital and debt of $993m. Analysts said the deal made good strategic sense, but questioned the multiple that APA has agreed to pay.

UBS analyst Tom Allen said APA had to pay a multiple of 12.9 times the forecast forecast revenues for 2024, but Mr Watson said the infrastructure company believed the deal was good value and would be free cash flow accretive in its first full year of ownership.

The deal is the second major outlay by APA in WA in the last few months after it completed work on the 580km pipeline in the state that the country’s largest listed infrastructure company said could unlock the state’s gas market.

The Northern Goldfields Interconnect positions APA to capitalise on the surging interest to tap gas supplies from the Perth Basin and hopes to drastically bolster critical minerals production in WA.

WA has abundant supplies of almost all of the government’s critical minerals list, including alumina, cobalt, lithium, graphite – much needed amid global efforts to produce batteries and renewable energy projects to wean from fossil fuels.

But the $460m pipeline is unlikely to be fully utilised to its full capacity for months to come, but Mr Watson is steadfast that the company is laser focused on its strategy of strategic assets in a remote grid.

The deal will also aid Alinta’s own ambitions, and chief executive Jeff Dimery said the funds will be used to accelerate Australia’s fourth largest retailer’s own renewable energy pipeline.

“We had a long-term vision and plan to decarbonise the Pilbara, which is well underway and underpinned by the strong renewables and emissions reductions targets of our customers and partners in the region,” said Mr Dimery.

“We congratulate APA for buying into that vision.”

The deal was unveiled as APA announced net profit for the year jumped more than 10 per cent.

Statutory net profit totalled $287m for the 12 months ended June 30, up from $259.7m the company posted one year earlier.

Underlying earnings before interest, tax, depreciation and amortisation rose 2 per cent to $1.7bn, below market expectations.

Mr Watson described the financial result, however, as strong and reflecting the good progress the business has made to broaden its revenue stream.

“What you can see through the result clearly is that we’re really firmly focused on our strategy and executing our strategy and I think we’re showing we’ve got runs on the board,” said Mr Watson.

APA will issue a final dividend of 56c per share.

Originally published as APA bets $1.8bn on decarbonising big mining