As the ink dries on Whitehaven Coal’s $US4.1 billion ($6.5 billion) acquisition of two of BHP’s Queensland coal assets, movement on the ASX shows that stakeholders are mulling over the broader significance of the deal.
Following the announcement of the deal on Wednesday, Whitehaven opened on the ASX with a bang at $7.79 per share (up from $6.69 on Tuesday), its highest share price since the coal boom at the beginning of the year.
The purchase of BHP’s Daunia and Blackwater coal mines comes with a price tag of $US2.1 billion in cash up front, $US1.1 billion in cash over three years after completion and the potential for up to $US0.9 billion in a price-linked earnout payable over three years. This comprises a total sale price of around $6.48 billion, with completion of the deal expected in the June 2024 quarter.
Whitehaven chief executive officer and managing director Paul Flynn called the acquisition of the two metallurgical coal assets ‘transformative’ for the company.
Metallurgical and thermal coal differ in quality and carbon content. Thermal coal is traditionally burned to generate electricity, but as Australia and the world transition to cleaner energy, thermal coal is heavily regulated and arguably falling from relevance. Metallurgical coal, on the other hand, is a higher quality coal used in steelmaking with strong global demand.
The deal will mean 70 per cent of Whitehaven’s coal production will be metallurgical, giving the miner some much needed longevity in the heavily regulated realm of coal mining.
“Daunia and Blackwater produce metallurgical coal that is in high demand across Asia… where population growth and economic development is expected to drive strong demand for steel production and metallurgical coal through to at least 2050,” Flynn said.
The two mines also expand Whitehaven’s coal assets outside of NSW, where the company currently operates four mines in the Gunnedah Basin.
But BHP seems to feel differently when it comes to the longevity of Daunia and Blackwater – at least under its own capital investment model. The mining giant first flagged the two Queensland mines for sale so it could focus on producing higher quality metallurgical coal, a move it views as more sustainable.
“A key route for steelmakers to be able to reduce their carbon intensity will be through more efficient blast furnace operations. That requires the highest of quality coking (metallurgical) coal. And that’s what we have in assets like Peak Downs, Goonyella, Saraji and Broadmedow,” BHP said.
“And so those assets we see as having both sides through the energy transition. What we’re doing here is further concentrating our portfolio on the best of the best assets.”