The Coal Trader

Coal Markets Coal News Coal Mining

Olive Downs’ PE owners test waters for continuation fund

Private equity-backed Queensland coking coal mine Olive Downs is ready to shake up its ownership. Street Talk understands Olive Downs’ owner Pembroke Resources – and its backer Denham Capital – have initiated discussions with the mine’s existing investors keen for an exit as they approach the seventh year of ownership.

Sources said the talks are the first step towards selling these investors’ slice of Olive Downs into a new fund, which would still be run by Pembroke and Denham but eventually owned by a new set of investors. The structure, better known as a “continuation fund”, has been used by Pacific Equity Partners at Intellihub and by Crescent Capital Partners at Healthcare Australia – although it’s not often seen in mining deals.

In terms of mechanics, it will be a case of sizing up the selling group as well as their price expectations, and matching it to a group of investors willing to come in. Sources said the preparations were in early stages, and there was no certainty Pembroke and Denham would see the continuation fund to fruition.

Pembroke boss Barry Tudor has previously billed the Olive Downs mine as potentially “the last of its kind in the world”, as governments swear off new coal projects. The private equity firm has already spent nearly $500 million on developing it, with hopes of supplying to clients in Japan, South Korea and India.

It is aiming for 20 million tonnes in annual coal production when fully built. That would more than double the 8.3 million tonnes production from Goonyella, the biggest Queensland coking coal mine in BHP and Mitsubishi’s portfolio, in the 2022 financial year.

BHP and Mitsubishi’s $6.4 billion sale of Blackwater and Daunia coking coal mines to Whitehaven Coal has revived M&A interest in the sector. Since then, South32 has sold its 50 per cent stake in Eagle Downs to Stanmore Resources, while Whitehaven Coal has kicked off a process to offload 20 per cent of the Blackwater mine.

By: Sarah Thompson, Kanika Sood and Emma Rapaport