Stanmore Resources expands Queensland interests with 50% acquisition of Eagle Downs coal project

Stanmore Resources (ASX: SMR) has signed a definitive sale and purchase agreement with a wholly-owned subsidiary of South32 (ASX: S32) to acquire a 50% interest in the mothballed Eagle Downs coal project in Queensland and a 100% interest in Eagle Downs Coal Management.

The acquisition will provide Stanmore with a fully-permitted development option for a world-class hard coking coal underground project that has strong synergies with its existing portfolio of top tier metallurgical coal assets in the Bowen Basin.

Upfront consideration for the deal is US$15 million, plus a deferred consideration of US$20m payable upon the first 100,000 tonnes of coal derived from longwall mining methods as well as a future capped royalty of up to US$100m linked to average coal index price thresholds.

Stanmore will also assume all obligations associated with Eagle Downs’ potential contingent royalty payments to partial owner Vale Australia Holdings in relation to the transfer.

This royalty will apply to 50% of all future coal sales revenues capped at US$80m and subject to minimum coal price thresholds being achieved.

The remaining 50% interest in the project will be held by Aquila Coal, a subsidiary of China Baowu Steel Group Corporation.

Stanmore has been in talks with Aquila in relation to a joint venture at Eagle Downs that it will head up through its ownership of Eagle Downs Coal Management.

Expanded Queensland footprint

Stanmore chief executive officer Marcelo Matos said the proposed acquisition is consistent with the company’s ambition to expand its footprint in Queensland’s premium metallurgical coal basin.

“Eagle Downs is a high-quality project underpinned by a substantial resource base, which provides an exciting development opportunity that is complementary to our broader portfolio and in close proximity to our existing operations,” he said.

“We believe we can bring our strong technical capabilities, as well as unique infrastructure and logistics portfolio, which will enable Stanmore to unlock the full value potential of Eagle Downs and provide a capital-efficient pathway for any future development decision.”

Completion of the acquisition is expected by mid-year.

High-quality coal project

Eagle Downs is a high-quality coal project with a substantive underground resource base of 1,140Mt, located approximately 20 kilometres from the town of Moranbah.

It is directly south of Stanmore’s Isaac South exploration permit and other assets, providing the company with the potential to leverage existing infrastructure and logistics capabilities to drive development and operating cost efficiencies.

The project has been on care and maintenance since late 2015 following initial development works including establishment of water supply and high-voltage power systems, sealed roads, office buildings and water and sediment dams.

The project is fully permitted with mining lease and key environmental approvals already granted.

Mr Matos said the site is ready for immediate construction, with two underground access drifts approximately 40% complete.

Premium product

Eagle Downs is expected to generate a premium low-volatility, hard coking product throughout a 40-year mine life.

The project is unencumbered by any existing logistics-related take-or-pay arrangements to be assumed by Stanmore.

Stanmore is considering a final optimisation study with a view to developing a lower capital development plan to support any final investment decision for Eagle Downs.