South32 is said to study bid for $1.6bn Rio coal portfolio

MELBOURNE – South32 is studying a potential bid for Rio Tinto Group’s A$2-billion ($1.6-billion) coking coal portfolio, people familiar with the matter said, as it seeks to take advantage of surging prices for the steelmaking ingredient.

The Perth-based company is working with an adviser as it weighs an offer for Rio Tinto’s Hail Creek and Kestrel mines in Australia, according to the people. It could face competition from suitors including  Whitehaven Coal, which is also considering a bid, the people said, asking not to be identified because the information is private.

Rio Tinto distributed preliminary information on the assets to potential buyers earlier this month and has asked for indicative bids by early December, the people said. The company is also gauging buyer interest for its Valeria and Winchester South coal projects in Queensland state, one of the people said.

South32’s coking coal output tumbled by two-thirds in the three months to September 30 after operations at an Australian mine were halted. Output in part of the Illawarra operations resumed this month, though production will be lower than previously expected over at least the next two years, RBC Capital Markets said Thursday in a note.

Coking coal prices have more than doubled since the start of last year. Chief Executive Officer Graham Kerr, who has said he wants to boost production of the commodity, in April dropped the purchase of a Peabody Energy Corp. coking coal mine after Australia’s competition regulator expressed concerns.

BIG DEAL
Any transaction would be the biggest purchase by the company, which hasn’t closed any major deals since it was spun off from BHP Billiton more than two years ago. The company’s largest deal so far was an initial C$110-million ($88-million) investment in explorer Arizona Mining, data compiled by Bloomberg show.

A spokesman for South32 said the company continues to focus on identifying new opportunities outside its portfolio to compete for capital, in an emailed response response to Bloomberg queries. He declined to comment on the Rio assets.

Private equity groups including EMR Capital Advisors are also considering bidding for the mines and other mining companies including Anglo American are expected to study the details of the operations, the people said.

Spokespersons for Rio Tinto and Whitehaven declined to comment, while a spokesperson for EMR Capital declined to comment. A Brisbane-based spokeswoman for Anglo American didn’t immediately respond to a request for comment.

Rio Tinto controls 82 percent of Hail Creek in the Bowen Basin region of Queensland state. The mine can produce as much as ten-million metric tons of coal a year, according to the firm’s website. It owns 80% of Kestrel, which produced five million tons of coking and thermal coal in 2016, the website shows.

The company last month boosted estimates of coal reserves at Kestrel by 62-million tons to 185-million tons, according to an exchange filing. The Valeria project is a semi-soft coking coal and thermal coal deposit close to Kestrel, while Winchester South is a coking coal asset in central Queensland.