Commission warns South32’s Metropolitan acquisition may harm Australian steelmakers

PERTH (miningweekly.com) – The Australian Competition and Consumer Commission (ACCC) has raised concerns around diversified miner South32’s $200-million acquisition of the Metropolitan mine.

South32 in November 2016 struck a deal with US miner Peabody Energy to acquire the Metropolitan mine, as well as Peabody’s 16.67% stake in the Port Kembla coal terminal, in New South Wales.

The Metropolitan colliery underground mine has a production capacity of 2.3-million tonnes a year, with a 28-million-tonne proven and probable coal reserve. The mine produced two-million tonnes of saleable coal in 2015.

The project has an on-site processing facility with a capacity of 480 t/h, and the export coal is transported through the Port Kembla coal terminal, while domestic coal is transported by rail to domestic steelworks.

The ACCC on Thursday pointed out that South32 and Metropolitan were two of the largest coking coal producers in the Illawarra region and the two largest suppliers of coking coal to Australian steelmakers.

“The ACCC is concerned that the proposed acquisition may substantially lessen competition in the supply of coking coal to Australian steelmakers. South32 would become the Illawarra’s only supplier of large volumes of coking coal in the medium term, following the expected closure of Glencore’s Tahmoor mine,” the ACCC said in a statement.

“Australian steelmakers currently appear to benefit from competition between South32 and Metropolitan in the form of lower prices and a wider product range. This transaction will remove that competitive rivalry,” ACCC chairperson Rod Sims said.

“The ACCC recognises that coking coal is a globally traded commodity where producers typically compete on a global basis. However, local competition between South32 and Metropolitan to supply the Australian steelmakers is important in determining the prices paid by Australian steelmakers.”

“The ACCC’s preliminary view is that coal suppliers outside the Illawarra region may not act as a strong competitive constraint on South32, largely due to the additional costs to the Australian steelmakers associated with transporting material volumes of coal from other regions, such as the Bowen basin in Queensland,” Sims said.

The ACCC has now invited submissions from interested parties in response to its statement of issues and a final decision is expected on April 6.