Coal news and updates

South32 Illawarra Metallurgical Coal mines to be sold off in deal that needs BlueScope approval

Miner South32 has signalled a further transition to a low-carbon business announcing plans to sell Illawarra Metallurgical Coal (IMC), a company running the Appin and Dendrobium coal mines in Wollongong and a stake in the Port Kembla Coal Terminal.

The proposal is to sell to Golden Energy and Resources and M Resources, an Asian-based resources company with a majority stake in three coalmines in Queensland's Bowen Basin. 

The new acquisition has a total sale price of $2.53 billion ($US1.65 billion), has multiple components, and is subject to approval by steelmaker BlueScope, which also has an option to buy IMC.

South32 chief executive Graham Kerr said the deal represented significant value for shareholders and was consistent with a strategic move 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," Mr Kerr said.

"The transaction will also simplify our business and reduce our capital intensity."

Deal based on strategy more than price

Chief investment officer with investment guidance firm The Motley Fool Scott Phillips believed the proposed sale was motivated more by strategy than price.

"South32 doesn't exactly seem like it's getting a fantastic deal out of this, probably not a terrible deal," he said.

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"But this does seem motivated far more by strategic concerns than about the specific value of this particular asset."

Mr Phillips said BlueScope may be able to influence the sale price but he doubted the steelmaker would want to buy IMC.

"It's possible BlueScope may see this as too cheap a deal and they may frankly just want to say we'll pick it up for this price and sell it later for a higher price," he said. 

"Maybe that's possible or we are prepared to take the risk and get more value out of it. 

"Their pre-emption rights are largely to ensure supply for BlueScope, as a steel business primarily. That's kind of their key interest in this one."

BlueScope has issued a statement outlining it has a supply agreement with IMC lasting until 2032 covering the Appin and Dendrobium mines.

"BlueScope has ongoing rights under the long-term supply contract, including pre-emption acquisition rights in favour of BlueScope," the statement said.

Also considering its position is the Mining and Energy Union, with district secretary Andy Davey optimistic it could be beneficial for Illawarra coalmine workers.

"South32 has driven a toxic and divisive employment model built on outsourcing permanent jobs to labour-hire companies and pitting contracting firms against each other to undercut wages," Mr Davey said.

"It's good riddance as far as we are concerned."

Mr Davey said the two Illawarra mines directly employ around 1,000 mineworkers while at least a further 1,600 are employed via labour-hire firms and as contractors.