The Coal Trader

China’s biggest steel maker exits Queensland coal

Stanmore Coal will consolidate ownership of Queensland’s undeveloped Eagle Downs coking coal mine after striking a deal with Chinese state-owned steel maker Baowu.

Stanmore will pay $24.7 million upfront for Baowu’s 50 per cent stake in Eagle Downs plus a nearby tenement, but may eventually pay an additional $273 million if certain coal production and price targets are met. The deal comes less than two months after Stanmore agreed to pay at least $22.7 million to South32 in return for the other half of Eagle Downs. The South32 deal is expected to complete before June and could eventually be worth $205 million if certain coal production volumes and prices are achieved.

The deal comes in the same week that Whitehaven Coal completed the acquisition of BHP’s Daunia and Blackwater coking coal mines in Queensland, and as Pembroke Resources ramps up production of the new Olive Downs mine in the same region. Friday’s deal with Baowu also continues the growth of Indonesian backed Stanmore, which was a little known microcap until coal entrepreneur Nick Jorss struck a bargain amid depressed coal prices in 2015 when he purchased Vale’s Isaac Plains coal mine in Queensland for a headline price of $1.

A coal price rally in 2016 made that deal a success, and attracted Indonesia’s uber-rich Widjaja family, who eventually gained indirect control of Stanmore in 2020.

The Widjaja backing has since provided Stanmore with the capital required to grow through acquisitions; it paid $1.6 billion to acquire controlling stakes in BHP’s South Walker Creek and Poitrel coking coal mines in November 2021.

The BHP deal was an instant success; prices for the particular type of coal produced at South Walker Creek and Poitrel rose more than any other type of coal when Russia invaded Ukraine in early 2022. Stanmore consolidated full ownership of the Millennium and Mavis Downs coking coal mines in late 2023, making it one of the biggest players in the Queensland coking coal sector.

Companies related to the Widjaja family have this year struck a $2.5 billion preliminary deal to buy South32’s Illawarra coking coal mines.

Baowu has controlled half of Eagle Downs since it led the $1.42 billion privatisation of ASX-listed Aquila Resources in 2014. The Aquila takeover has thus far been a disaster for Baowu, which was the 85 per cent partner in the $1.42 billion deal. The deal gave Baowu control of Eagle Downs and undeveloped iron ore assets in the West Pilbara.

Not a single tonne of coal or iron ore has yet been shipped from the assets Baowu acquired from Aquila, although that could change later this year when some of the West Pilbara iron ore is brought to market thanks to the new Ashburton port Mineral Resources is building near Onslow in WA.

Aside from contributing about $1.2 billion toward the $1.42 billion takeover of Aquila – the rest was contributed by Baowu’s partner of the time, Aurizon – Baowu has spent between $550 million and $600 million on the port capacity that was supposed to allow Eagle Downs coal to get to market. Take-or-pay contracts signed by Aquila in 2011 forced Baowu to pay for the port capacity even though it was not using it, and Baowu paid close to $300 million to the owners of Wiggins Island Coal Export Terminal last year to settle its future port capacity obligations.

That settlement was designed to make it easier to sell Baowu’s stake in Eagle Downs.

By Peter Ker

Source: AFR