South32 Coal Business Sale

South32 Announces $1.65 Billion Sale of Illawarra Metallurgical Coal Business

South32 has reached an agreement to sell its Illawarra Metallurgical Coal business in eastern Australia for up to $1.65 billion. The entity buying the business is owned by Golden Energy and Resources and M Resources, marking a significant deal for the company.

Deal Breakdown

The deal includes an upfront cash payment of $1.05 billion, with an additional deferred sum of $250 million payable in 2030. Moreover, there is a further $350 million over five years dependent on market prices meeting specified thresholds.

Shift in Focus

South32's Chief Executive, Graham Kerr, stated that this sale allows the company to realign its business towards commodities essential for the transition to a low-carbon economy. By concentrating on base metals like zinc and manganese, South32 aims to support the evolving energy landscape.

Strategic Transformation

The company has been actively working towards producing metals anticipated to be crucial during the energy transition. In line with this strategy, South32 recently approved a $2.16 billion zinc, lead, and silver mine project in southern Arizona.

"Streamlining our portfolio will strengthen our balance sheet and enable us to invest in high-quality development projects in copper and zinc," Kerr emphasized, highlighting the strategic significance of the coal sale.

Value Proposition

The deal is expected to deliver substantial value for shareholders, with a multiple of approximately 7.2 times average annual free cash flow for the operation. This transaction is projected to conclude in the first half of fiscal 2025.

Acquisition Details

The Illawarra Metallurgical Coal operation, situated in New South Wales, Australia, will be acquired by GEAR M Illawarra Met Coal, with 70% ownership by Golden Energy and Resources and 30% by M Resources. Both entities have notable investments in the metallurgical coal sector.

Implications and Outlook

Notably, South32 anticipates a non-cash impairment reversal of up to $370 million after tax in its fiscal 2024 results due to this transaction. The transfer of all current and future liabilities to the buyer marks a significant step in reshaping South32's business direction.