South32 to sell Illawarra Metallurgical Coal to Golden Energy and Resources and M Resources

In a significant development within the mining and resources sector, South32 (ASX:S32), a global mining and metals company, has entered into an agreement to sell its Illawarra Metallurgical Coal operations to a consortium led by Golden Energy and Resources (GEAR) and M Resources. The deal, valued at up to US$1.65 billion, marks a pivotal move for South32, aiming to refocus its portfolio on growth opportunities and key operating positions across various commodities.

The transaction comprises an upfront cash payment of US$1.05 billion upon the deal’s completion, followed by a deferred cash payment of US$250 million scheduled for 2030. Additionally, there is a contingent price-linked cash consideration of up to US$350 million, depending on future market conditions. This strategic sale reflects a multiple of 7.2 times the average annual free cash flow generated by the Illawarra Metallurgical Coal operations, highlighting the value South32 places on its assets.

Illawarra Metallurgical Coal is renowned for producing high-quality metallurgical coal, an essential component in steel production. “Illawarra Metallurgical Coal produces high-quality metallurgical coal, a key ingredient in the production of steel, which will be required until low-carbon steel becomes economically viable on a commercial scale,” stated Graham Kerr, CEO of South32. He further emphasized the credentials of GEAR and M Resources as established participants in the Australian metallurgical coal industry, noting their commitment to environmental and safety standards.

The agreement, expected to be finalized in the first half of the fiscal year 2025, is subject to approval from the Foreign Investment Review Board, regulatory approvals, and the waiver or pre-emption rights held by BlueScope Steel (AIS) Proprietary (BlueScope). Once completed, GEAR will assume economic and operating control of the Illawarra Metallurgical Coal, including all existing and future liabilities, signaling a new chapter for the operation and its contribution to the steel industry and the Illawarra and Macarthur regions.

This sale is part of South32’s strategy to streamline its portfolio and concentrate on sectors where it sees the most growth, such as aluminium, base metals, and manganese. By divesting its Illawarra Metallurgical Coal operations, South32 aims to unlock shareholder value and enhance its focus on commodities with long-term growth prospects. This move is also indicative of the broader industry trend towards portfolio optimization and strategic realignment in response to evolving market demands and the global transition towards more sustainable and low-carbon energy sources.

The sale of Illawarra Metallurgical Coal to GEAR and M Resources by South32 is a noteworthy event in the mining sector, highlighting the ongoing strategic shifts within the industry. This transaction not only underscores the value of high-quality metallurgical coal assets but also reflects the industry’s adaptive strategies in navigating the complexities of global markets and the transition towards sustainable practices. For South32, this deal represents a significant step in its broader strategy to focus on commodities with robust growth trajectories and to streamline its operations for future success.