APA spends $1.7bn for Pilbara energy foothold

APA is to undertake a $675 million capital raising as part of a mammoth transaction to acquire a suite of Alinta Energy infrastructure assets in the Pilbara, where iron ore miners have big decarbonisation targets.  

The $1.7 billion transaction was announced by Australian gas retailer Alinta Energy and energy infrastructure major APA Group on Wednesday morning.

APA’s reasoning for the deal comes as part of its broader effort to cement itself as a supplier of infrastructure needed by companies to make the transition to more renewable energy sources.  

The assets APA will buy from Alinta station the company in Australia’s mining heartland where the likes of Rio Tinto, BHP and Fortescue have made big pledges to decarbonise their mining operations.

BHP is aiming to achieve net zero operational greenhouse gas emissions by 2050, with a medium term 2030 target to reduce emissions by at least 30 per cent.

The Big Australian anticipates having up to 550 megawatts of renewables (wind, solar and battery energy storage) installed by 2030.

Competitor Rio Tinto is aiming for a 15 per cent reduction by 2025, a 50 per cent reduction by 2030 and net zero by 2050. It plans to install a 1 gigawatt (GW) renewable energy system in the Pilbara to support this, including transmission and storage, by 2030.

Beyond 2030, Rio is aiming for full decarbonisation of its Pilbara operations including electrification of mobile and rail equipment. This is estimated to require up to 3GW of installed renewable energy assets.

The company recently told shareholders however that it won’t be able to meet decarbonisation ambitions without the help of carbon offsets, months after chief Jakob Stausholm expressed regret about the targets he set.

Meanwhile, Andrew Forrest’s Fortescue Metals is leading an ambitious charge to achieve ‘carbon neutrality’ by 2030, with plans to deploy an additional 2GW to 3GW of renewable energy generation and battery storage by then.

Commenting on the transaction announced today, APA chief executive and managing director Adam Watson said the deal granted APA a new growth platform in the remote-grid energy sector.

“It’s consistent with our strategy to be the partner of choice in delivering infrastructure solutions for the energy transition and links directly with our focus on customers in the resources sector,” he said.

“The business is underpinned by high-quality assets and a stable base of blue-chip customers operating in one of the world’s leading mining geographies.

“It allows us to leverage our existing skills in operating large-scale gas, renewables and storage infrastructure, and provides the opportunity to capitalise on the increasing need for reliable, affordable and lower emissions energy as the resources sector continues to decarbonise.”

Assets to be purchased by APA from Alinta include 200 kilometres of high voltage powerlines, a 210 megawatt power station in Port Hedland, a 238 megawatt power station in Newman as well as a 35 megawatt battery.

A 60 megawatt solar farm in Chichester and an 11.8 per cent stake in the Goldfields gas transmission pipeline are also included as well as a further 80 megawatts of further capacity under construction.

In all, the APA's new construction and development pipeline in the Pilbara is estimated to deliver approximately 1GW of power capacity.

For Alinta, the sale means it has the financial muscle to fund renewables and storage projects over east, including a 1 gigawatt offshore wind project in Victoria and a 900 megawatt pumped hydro project in New South Wales.

Alinta affirmed the deal would have no impact on its retail gas operations and a recently announced 100 megawatt battery in WA's South West.

To fund the acquisition, APA has launched a $750 million capital raising, comprising a $675 million institutional placement as well as a security purchase plan for another $75 million.

Shares will be offered to investors at $8.50, representing an 8.2 per cent discount on APA’s last closing price and an 8.7 per cent discount on the stock’s five day volume weighted average price.

APA shares issued under the placement represent 6.7 per cent of the company’s register.

A new $1 billion debt facility has been established to fund the remainder of the acquisition.

The deal will not need to be signed off by consumer watchdog Australian Competition and Consumer Commission.