Australian mining company South32 has signed a binding agreement to divest its Illawarra Metallurgical Coal operations to Golden Energy and Resources (GEAR) and M Resources for $1.65bn (A$2.54bn).
This sale is a strategic move to streamline South32’s portfolio and focus on growth in other sectors.
The deal consideration includes an upfront cash payment of $1.05bn, with an additional $250m deferred to 2030.
A further contingent payment of up to $350m is linked to future coal prices, reflecting a multiple of around 7.2-times the average annual free cash flow of the Illawarra operations.
Completion of the transaction is anticipated in the first half of fiscal 2025, pending necessary approvals, including those from the foreign investment review board and customary regulatory bodies.
BlueScope Steel’s pre-emption rights are also to be waived or not exercised for the sale to proceed.
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Upon taking control, the buyer will assume all economic, operational and future liabilities associated with Illawarra Metallurgical Coal.
South32 highlighted that this transaction will not only benefit shareholders but also aligns with its strategy to optimise its portfolio, focusing on aluminium, base metals and manganese.
The sale is expected to bolster South32’s balance sheet, allowing for increased investment in promising copper and zinc projects, which could boost base metal production by 45%.
Additionally, it will reduce the company’s operating footprint and capital intensity, as Illawarra Metallurgical Coal currently accounts for 35% of South32’s capital expenditure.
South32 CEO 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.”
Earlier this month, South32 received board clearance to invest $2.16bn in the development of the zinc-lead-silver deposit at the Hermosa project in Arizona, US.
