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South32 walks away from deal to buy Peabody mine

Apr 18 2017 12:07
Lynn Doan, Bloomberg News

San Francisco - South32 [JSE:S32] is ditching the first major deal it made since spinning off from BHP Billiton [JSE:BIL] in 2015.

The Perth-based company said ON Tuesday that it’s walking away from a planned takeover of Peabody Energy’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 $200m for the assets last year, but Australian regulators raised concerns about the sale weakening competition among coal suppliers to domestic steelmakers. South32 said in a statement that it wasn’t willing to make 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 CEO Graham Kerr said in the statement.

The failed deal comes just as coal prices 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.

For its part, Peabody said it’ll 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 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 CEO 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’ll continue to focus on shrinking debt and returning cash to shareholders.

South32's share price was trading 1.66% lower at R28.36 by 11:46 in Johannesburg.

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