South32 sells Illawarra Metallurgical Coal business in Australia for up to $1.65B

LONDON: South32 Limited, a diversified mining company, has announced that it has agreed to sell its Illawarra Metallurgical Coal business in Australia to a consortium of Golden Energy and Resources Pte Ltd (GEAR) and M Resources Pty Ltd (M Resources) for up to US$1.65 billion.

The deal, which is expected to close in the first half of fiscal year 2025, will see the buyer take over the economic and operating control of Illawarra Metallurgical Coal, which produces high-quality metallurgical coal for steelmaking.

The consideration for the transaction consists of US$1.05 billion in upfront cash, US$250 million in deferred cash payable in 2030, and up to US$350 million in contingent price-linked cash payments. The total consideration represents a multiple of about 7.2 times the average annual free cash flow generated by Illawarra Metallurgical Coal.

South32 said the transaction will unlock significant value for its shareholders and is consistent with its strategy to simplify its portfolio and focus on its core assets in aluminium, base metals and manganese. The company also said the transaction will strengthen its balance sheet, reduce its capital intensity, and enable it to invest in its high-quality development projects in copper and zinc.

The transaction is subject to certain conditions, including the approval of the Foreign Investment Review Board, customary regulatory approvals, and the waiver or non-exercise of pre-emption rights held by BlueScope Steel, a major customer of Illawarra Metallurgical Coal. If BlueScope exercises its pre-emption rights, South32 will sell Illawarra Metallurgical Coal to BlueScope on the same terms and conditions as agreed with the buyer.

The transaction also includes a US$40 million deposit payable to South32, which will be refunded if the conditions precedent to the transaction are not satisfied. The transaction is also subject to a material adverse change clause, which allows the buyer to terminate the deal if an uncured event occurs resulting in a significant reduction in coal output, net assets or reserves.

South32 Chief Executive Officer, Graham Kerr said: “This Transaction will realise significant value for our shareholders and is consistent with our strategy to reshape our portfolio toward commodities critical in the transition to a low-carbon future. 

“It will streamline our portfolio, strengthen our balance sheet and unlock capital to invest in our high-quality development projects in copper and zinc.  

“The Transaction will also simplify our business and reduce our capital intensity.    

“Illawarra Metallurgical Coal produces high-quality metallurgical coal, a key ingredient in the production of steel, which will be required until low-carbon steel becomes economically viable on a commercial scale.

“GEAR and M Resources are established participants in the Australian metallurgical coal industry, with a strong commitment to environmental and safety standards, who are well positioned to continue Illawarra Metallurgical Coal’s contribution to the local steel industry and the Illawarra and Macarthur regions.

“Our focus remains the safe and reliable operation of Illawarra Metallurgical Coal. Over the coming months we will work with the Buyer, our workforce, the local community, government, customers and suppliers to support a successful transition of ownership.”