MENU
 Registered users can save articles to their personal articles list. Login here or sign up here
In this story
 Registered users can save articles to their personal articles list. Login here or sign up here

South32 abandons deal to buy Peabody coal mine in Australia

Australian producer decided not to make required concessions.

South32 is ditching its first major deal since spinning off from BHP Billiton in 2015.

The Perth-based company said on Tuesday it’s walking away from Peabody Energy Corporation’s Metropolitan Colliery coal mine and its minority stake in the Port Kembla coal export terminal, both in Australia. It had agreed to pay at least $200 million for the assets last year, but Australian regulators raised concerns the sale would weaken competition among coal suppliers to domestic steelmakers. South32 said it wasn’t willing to make concessions necessary to get the sale cleared.  

The failure of the deal “is unfortunate” for South32 “considering the obvious synergies with its existing Illawarra operations”  Paul Hissey, an RBC Capital Markets analyst, wrote in a research note. The proposed acquisition was a “pro-growth catalyst for South32.”

The failed deal comes as prices for the coal used in steel making are surging amid weather-related disruptions in Australia. It also comes just two weeks after St. Louis-based Peabody emerged from bankruptcy and re-listed on the New York Stock Exchange.

South32 shares lost 1.1% to A$2.80 at 12:52 p.m. in Sydney. The benchmark S&P/ASX 200 Index also dropped 1.1%.

‘Compromising’ Concessions

“To proceed with the acquisition, in light of the anticipated concessions, would have compromised the merits of the transaction and this is not something we are prepared to do,” South32 chief executive officer Graham Kerr said in the statement.

Peabody said it will keep the mine and the terminal stake, along with a deposit negotiated as part of the transaction. Operations won’t be affected and the mine should be fully resuming shipments at the end of May, the company said in a separate statement.

“We are surprised that South32” and Australian regulators “reached an impasse, given both the physical synergies and the global nature of the metallurgical coal markets,” Peabody chief executive officer Glenn Kellow said in the statement. “On the other hand, we see continuing opportunities given Metropolitan’s quality coking coals and port location.”

Peabody said it will continue to focus on shrinking debt and returning cash to shareholders.

© 2017 Bloomberg

More stories from Moneyweb
Stephen Katzenellenbogen

Stephen Katzenellenbogen

NFB Private Wealth Management
Moneyweb Click an Advisor
   No comments so far

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up here

Latest Currencies

ZAR / USD
ZAR / GBP
ZAR / Euro

MARKET INDICATORS

JSE ALSI
Hang Seng
Nikkei
Dow Jones (close only)
S&P 500 (close only)
Gold / oz
Silver
Platinum / oz
Brent
Rand/Dollar
Rand/Pound
Rand/Euro
Dollar/Euro

MONEYWEB NEWSLETTERS

Subscribe to our mailing list

* indicates required
Moneyweb newsletters

Podcasts

Moneyweb Investor Issue 25

If the world's best investment managers, who came together at a recent CFA conference, cannot figure whether a crash or correction is looming, ordinary investors can be forgiven for their hesitation. Thus the June issue of The Moneyweb Investor does its best to fill the gaps. With 17 stories and a podcast, you wouldn't want to miss it.

Follow us:

Search Articles:Advanced Search
Click a Company:
server: 172.17.0.2