South32 streamlines portfolio with $2.5b divestment of Illawarra Metallurgical Coal
Australian diversified mining company South32 (ASX: S32) has agreed to divest its Illawarra Metallurgical Coal project in New South Wales to an entity owned by Golden Energy and Resources and M Resources for up to $2.5 billion.
The deal will help simplify South32’s portfolio and allow it to focus on operating positions and growth options in the aluminium value chain, base metals and manganese.
The transaction will comprise an upfront cash consideration of approximately $1.62b at completion plus a deferred amount of approximately $385 million payable in 2030 and a contingent price-linked payment of up to $540m.
It will include a refundable deposit of approximately $62m.
Total consideration is believed to represent approximately 7.2 times more than the average annual free cash flow for Illawarra.
The divestment is expected to settle in the first half of the 2025 financial year, subject to conditions including Foreign Investment Review Board approval and the waiver or non-exercise of pre-emption rights held by Illawarra’s key customer BlueScope Steel (ASX: BSL).
Once completed, Golden Energy and M Resources will assume economic and operating control of Illawarra, including all current and future liabilities.
Golden Energy will have a 70% stake in the project, with M Resources holding the remaining 30%.
As a result of the divestment, South32’s statements for the 2024 financial year will include a non-cash impairment reversal of up to $800m (approximately $570m post-tax).
Illawarra Metallurgical Coal generates a high-quality product that is key to the production of conventional steel that will be in demand worldwide until low-carbon steel becomes economically viable on a commercial scale.
The project generated $1.64b of underlying revenue in 2023 for South32, representing about 18.2% of the company’s total underlying revenue of $9.05b for that period.
Consistent strategy
South32 chief executive officer Graham Kerr said the divestment was consistent with the company’s strategy to reshape its portfolio to accommodate the transition to a low-carbon future.
“This transaction will realise significant value for our shareholders,” he said.
“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.”
About the buyers
Golden Energy is an investment vehicle focused on resources in the Asia Pacific with major investments including a 59% interest in Australian listed coal producer Stanmore Resources (ASX: SMR), and a 50% interest in Ravenswood Gold in north-east Queensland.
M Resources is a global investment and marketing company which specialises in the trading of various metallurgical coal products for steel manufacturing.
It has substantial investments across the mining value chain including Stanmore Resources, One Rail and Metarock (ASX: MYE).
Established participants
Mr Kerr said Illawarra would be in safe hands with its new owners.
“[These companies] 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’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,” he added.
“Over the coming months we will work […] to support a successful transition of ownership.”