South32 inks $2.5bn deal

South 32 is set to pocket $2.5 billion from the sale of its Illawarra metallurgical coal asset in NSW to a joint venture entity in the sector.

The ASX-listed miner told the market it had entered into a binding agreement to sell its Illawarra metallurgical coal business to an entity owned by Golden Energy and Resources and M Resources.

Worth about $2.53 billion ($US1.65 billion), the deal consists of an upfront cash sum of $US1.05 billion, a deferred cash consideration of $US250 million in 2030 and a contingent price-linked amount of up to $US350 million from the buyers.

Perth-based South32 said the deal was worth 7.2 times the average annual free cash flow from the Illawarra metallurgical coal operation.

The miner said the transaction would also reduce its capital intensity, with the asset comprising about 35 per cent of the group’s capital expenditure.

South32 chief executive Graham Kerr said the deal aligned with its strategy to reshape its portfolio towards commodities critical in the transition to a low-carbon future.

“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 transaction would also simplify our business and reduce our capital intensity.

“Illawarra metallurgical coal produces high-quality metallurgical coal, a key ingredient in the production of steel, which will be required until low-carbon steel becomes economically viable on a commercial scale.”

The buyers are established participants in the Australian metallurgical coal industry, South32 says.

Golden Energy and Resources is an investment vehicle with interests in Australian metallurgical coal producer Stanmore Resources and Ravenswood Gold.

M Resources is an investment and marketing company with interest in trading metallurgical coal products for steel production.

If and when approved, the buyers Golden Energy and Resources and M Resources would own 70 per cent and 30 per cent, respectively, in the entity holding the asset.

Expected to be completed in FY25, the deal is subject to a waiver or non-exercise of pre-emption rights held by South32 client BlueScope, a steel producer and supplier.

South32 said if BlueScope doesn’t wave through the deal, the transaction would not proceed, and it would instead divest the Illawarra coal asset to BlueScope on the same commercial terms.

The deal is also subject to approval from the Foreign Investment Review Board.

South32’s shares last changed hands 3.5 per cent higher to $2.92 cents at 12PM AWST.