The Coal Trader

Coal Mining Appin Mine Illawara Met Coal

BlueScope considers tilt at South32 mines to pre-empt $2.5b sale

BlueScope is mulling whether to match the $US1.65 billion ($2.54 billion) Indonesian bid for the Illawarra coal mines that feed the Port Kembla steel mill, raising the prospect of reuniting assets that were separated by BHP’s 2002 steel demerger. BlueScope told the market it was “considering its position” after ASX-listed miner South32 announced the sale of the mines on Thursday.

Under BlueScope’s eight-year coal supply agreement with South32, the steelmaker has the first right to buy the mines, which would reunite the Port Kembla steel mill with the nearby coalfields it was built around.

Bluescope operates the Port Kembla steelworks, once part of BHP. Brook Mitchell

An integrated supply chain connects the coal from the underground mines at Appin and Dendrobium mines to the mill at Port Kembla.

“BlueScope has ongoing rights under the long-term supply contract, including pre-emption acquisition rights in favour of BlueScope, and the company will consider its position,” the company told investors in a statement.

But a bidding war will not eventuate between BlueScope and the overseas party interested in the Illawarra coal mines. That’s because BlueScope can elect to buy the coal business at the negotiated $US1.65 billion price tag, while the Indonesia-backed buyer is not entitled to make a higher bid, South32 chief executive Graham Kerr said.

“[The clause] gives them the right to basically transact on the same terms. They either exercise [their rights] or they don’t,” Mr Kerr said.

Under the agreement announced on Thursday, Golden Energy and Resources, an Indonesian group ultimately owned by the wealthy Widjaja family and a local firm, M Resources, would jointly buy the mines. GEAR will own 70 per cent of the venture. The underground coal mines are located 75 kilometres from Sydney.

The transaction – which comprises an upfront cash payment of $US1.05 billion at completion, and a deferred cash consideration of $US250 million payable in 2030 – is subject to approval from the Foreign Investment Review Board. But Mr Kerr signalled that he was confident the Indonesian group would gain approval. GEAR already owns the majority of ASX-listed Stanmore, a Queensland coal miner, and holds a 50 per cent interest in the Rosewood gold mine, also in Queensland.

GEAR was previously listed on the Singapore Exchange. Last year, however, it was bought by Duchess Avenue, a private Indonesian company majority-owned by Star Success and ultimately controlled by the Widjaja family. M Resources is run by Matt Latimore, who sits on the Stanmore board and is worth about $450 million.

Mr Kerr said South32 had decided to sell the mine to invest in commodities critical in decarbonisation such as zinc and copper. He added that the sale would also cut South32’s carbon emission profile. Coal mining releases gas from pockets of coal seams.

“It will streamline our portfolio, strengthen our balance sheet and unlock capital to invest in our high-quality development projects in copper and zinc,” he said.

The Port Kembla steel works was owned by BHP Steel. BHP spun off its steel assets into BlueScope in 2002. It demerged its Illawarra coal operations into South32 in 2015.

South32 shares rose 4.61 per cent to $2.95 on Thursday. The stock is down 37.23 per cent over 12 months. BlueScope increased 1 per cent to $22.84.

By: Elouise Fowler and Peter Ker