South32 to Sell Illawarra Metallurgical Coal for Up to $1.65 Billion — Update

By Rhiannon Hoyle

South32 said Thursday it has agreed to sell its Illawarra Metallurgical Coal business in eastern Australia for up to $1.65 billion to an entity owned by Golden Energy and Resources and M Resources.

The deal includes an upfront cash payment of $1.05 billion as well as a deferred sum of $250 million--payable in 2030--and a further $350 million over five years that is contingent on market prices reaching agreed thresholds.

For South32, the sale helps to reshape its business to focus on commodities that will be critical for the transition to a low-carbon economy, such as base metals and manganese, said Chief Executive Graham Kerr.

South32 has been seeking to produce more of the metals it expects will be needed during the energy transition. In February, it approved the development of a $2.16 billion zinc, lead and silver mine in southern Arizona in the U.S.

The coal sale "will streamline our portfolio, strengthen our balance sheet and unlock capital to invest in our high-quality development projects in copper and zinc," said Kerr.

It will also "realize significant value for our shareholders," he said. The deal value equates to a multiple of roughly 7.2 times average annual free cash flow for the operation, South32 said. It is expected to be completed in the first half of fiscal 2025.

The Illawarra Metallurgical Coal operation, in Australia's New South Wales state, will be bought by an entity called GEAR M Illawarra Met Coal that is 70% owned by Golden Energy and Resources and 30% owned by M Resources, South32 said.

Golden Energy and Resources is an Asia Pacific-focused resources company whose investments include a 59% interest in Stanmore Resources, an Australian metallurgical coal producer. M Resources, which also has an interest in Stanmore, specializes in trading metallurgical coal for steel manufacturing.

South32 said the sale will result in a non-cash impairment reversal of up to $370 million after tax in its fiscal 2024 results. All current and future liabilities will be taken on by the buyer, it said.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

February 28, 2024 17:13 ET (22:13 GMT)

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