Whitehaven strikes $3.2bn coal deal with BHP

PERTH (miningweekly.com) – Coal miner Whitehaven Coal has struck $3.2-billion deal with diversified miner BHP and Mitsubishi Development to acquire the Duania and Blackwater metallurgical coal mines in Queensland.

BHP has previously flagged plans to divest of the Daunia and Blackwater coal mines as the BHP Mitsubishi Alliance (BMA) would focus its coal portfolio on the highest quality metallurgical coal assets.

BHP said at the time that while being high-quality assets with growth potential, the Daunia and Blackwater mines would struggle to compete for capital under BHP’s capital allocation framework, including given its choices for deploying capital globally.

Under the agreement announced on Wednesday, Whitehaven would acquire full interest in the two metallurgical coal mines in a cash deal comprising a $2.1-billion upfront consideration payable on the completion of the transaction, as well as $1.1-billlion to be paid in three separate tranches on the first, second and third anniversary of the completion of the transaction.

In addition, contingent payments of up to $900-million; comprised of three yearly payments, payable on the date which is three months after the relevant anniversary of completion, dependent on realised pricing exceeding agreed thresholds, with yearly contingent payments capped at $350-million.

Whitehaven told shareholders that the transaction would be funded from a combination of available cash, a $900-million bridge facility, and cashflow from the company’s enlarged business over 2025 to 2027.

Following the transaction, Whitehaven’s total coal resources will increase by 75% from 2.6-billion to 4.6-billion tonnes for operating and development mines. The acquisition will increase Whitehaven’s coal resources in the Bowen basin from 1.1-billion to 3.1-billion tonnes, including 673-million tonnes of recoverable reserves.

“This is a compelling transaction for Whitehaven that accelerates our strategy, transforms our company and delivers substantial value for our shareholders,” said Whitehaven CEO and MD Paul Flynn.

“This transformational acquisition will pivot our portfolio towards metallurgical coal, which has been a core pillar of our strategy for many years making this a better-balanced business. Our thermal coal business remains strategically important as we continue to provide much-needed coal products to support the global energy transition and as customers seek our high-quality and high-calorific value products to limit their emissions.

“This is a highly attractive and materially earnings accretive acquisition, with considerable upside potential, which we expect will deliver meaningful returns to our shareholders for many years to come. It strengthens our portfolio of quality, long-life assets in attractive locations providing geographic and operational diversification and scale benefits,” said Flynn.

“Daunia and Blackwater produce much-needed metallurgical coal that is in high demand across Asia, including in India and South East Asia where population growth and economic development is expected to drive strong demand for steel production and metallurgical coal through to at least 2050. This acquisition will increase our exposure to these high growth market segments while expanding our regional footprint through new customers.

“We look forward to completing the transaction and welcoming the teams at Daunia and Blackwater into the Whitehaven business, and working with the local community and other stakeholders who will remain an important part of our operations.”

The sale is subject to the satisfaction of certain conditions, including competition and regulatory approvals. Whitehaven has agreed to pay a $100-million deposit on signing, which BMA is entitled to retain if the proposed divestment is terminated in certain limited circumstances.

Completion of the transaction is expected to occur in the June 2024 quarter.

BMA will continue to operate the assets until completion and work closely with Whitehaven to ensure a successful transition of ownership, the company said on Wednesday.

“This transaction has delivered a good outcome for the BHP Mitsubishi Alliance, our workforce and the communities around the Blackwater and Daunia operations,” BHP president minerals Australia Geraldine Slattery said.

“Whitehaven Coal has a strong track record as a responsible and reliable operator, and we will work closely with them to achieve a smooth change of ownership focused on maintaining safe and productive operations and supporting people and communities through the transition.

“In line with our long-term strategy, we will continue to develop our high-quality metallurgical coal assets in Queensland, which are sought after by global steelmakers and needed to support the energy transition.”

Net proceeds from the sale will be used to reduce BHP’s net debt.