Whitehaven Coal Signs a Deal Concerning the Acquisition of Coal Mines from the BHP Mitsubishi Alliance
Whitehaven Coal, an Australian coal producer, has entered into a notable deal to acquire coal mines from the Australian-Japanese joint venture, BHP Mitsubishi Alliance (BMA). The transaction encompasses the 12mn t/yr Blackwater and 4mn t/yr Daunia coking and thermal coal mines, both located in Queensland.
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The financial specifics of the acquisition involve an upfront payment of $2.1bn upon completion of the deal. Additionally, Whitehaven will disburse $1.1bn spread over the subsequent three years. There's also an arrangement for paying up to $900mn in royalties that will be linked to coal prices, over a span of three years. The expected timeline to finalize this deal is between April and June of the coming year. It's noteworthy to mention that market analysts had earlier anticipated the acquisition value to be below the $3bn mark.
As for Whitehaven's financial standing, the company reported a net cash position of A$2.45bn ($1.56bn) as of 30 September. To facilitate the immediate payment required for this acquisition, Whitehaven plans to employ an A$900mn bridging debt facility. The company anticipates that the subsequent payments, due in the following years, will be financed through its cash flow. However, this deal hasn't found unanimous support, with certain shareholders voicing their concerns. They advocate for the company to enhance capital returns rather than plunging into such a significant acquisition.
Whitehaven's rationale behind this acquisition is multifold. Firstly, it presents an opportunity for the company to pivot from its heavy reliance on thermal coal, introducing coking coal to its portfolio. This move aligns well with their Winchester South development project in Queensland. Additionally, the deal paves the way for Whitehaven to expand its market footprint, allowing it to cater to Indian and southeast Asian customers. This is a strategic shift from their predominant concentration on the northeast Asian market.
Historically, Whitehaven's primary business interest revolved around sales of high-grade thermal coal sourced from its mines situated in New South Wales. They do, however, possess the capability to venture into semi-soft coking coal sales if the pricing dynamics prove to be favorable. Interestingly, there was a surge in their sales of lower-grade thermal and metallurgical coal in the July-September window, a trend different from both preceding and year-before quarters. The adjustment in their mining plans can be attributed to the diminished premium on high-grade coal. The recent market conditions posed challenges for Australian mining entities trying to supply high-grade thermal coal to the seaborne market, largely due to the competitive pricing of gas.
In terms of production figures, BHP's quarterly update revealed that Blackwater's output for July-September stood at 2.6mn t, a decrease from the April-June quarter but a rise compared to the same quarter in 2022. Daunia's production was reported at 1.09mn t in the recent quarter, witnessing a decline from the April-June period but marking a significant increase from the corresponding quarter in the previous year. To provide an annual perspective, Blackwater and Daunia's production tallied at 10.12mn t and 3.98mn t respectively for the fiscal year 2022-23 ending on 30 June.
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According to the article by Procurement Resource, Whitehaven Coal is buying BHP Mitsubishi Alliance's Blackwater and Daunia coal mines in Queensland for up to $4.1bn. Whitehaven will diversify from thermal to coking coal and expand its market reach. The deal completion is slated for mid-next year. Some shareholders prefer increased capital returns over this acquisition. Blackwater and Daunia's production for fiscal year 2022-23 were 10.12mn t and 3.98mn t, respectively.
