Stanmore Resources to acquire South32’s stake in Eagle Downs coal project

Stanmore Resources Limited (ASX: SMR) has announced the signing of a definitive sale and purchase agreement with a wholly-owned subsidiary of South32 Limited to acquire a 50% interest in the Eagle Downs metallurgical coal project. This significant transaction also includes a 100% interest in Eagle Downs Coal Management Pty Ltd (EDCM) and associated assets, marking a pivotal expansion for Stanmore in Queensland’s esteemed metallurgical coal basin.

The agreement outlines a consideration structure comprising an upfront cash payment of US$15 million to South32 upon completion, a deferred consideration of US$20 million upon the mining of the first 100Kt of coal using longwall methods, and a future capped royalty of up to approximately US$100 million tied to average coal index price thresholds. Additionally, Stanmore will take on all obligations related to potential contingent royalty payments to Vale Australia Holdings Pty Ltd, linked to 50% of future coal sales revenues, capped at US$80 million.

This acquisition is a strategic move for Stanmore, reinforcing its ambition to broaden its presence in Queensland’s premium metallurgical coal basin. The Eagle Downs project, characterized by a vast resource base, offers a remarkable development opportunity that complements Stanmore’s existing portfolio. Positioned in close proximity to Stanmore’s current operations, the asset promises to unlock significant value potential through Stanmore’s technical capabilities and infrastructure.

Marcelo Matos, CEO of Stanmore, highlighted the acquisition’s alignment with the company’s strategy to extend its operational footprint and leverage its existing infrastructure for an optimized development plan. Eagle Downs is anticipated to contribute substantially to Stanmore’s production profile, with the potential for cost-efficient development by utilizing existing coal handling and processing facilities.

Stanmore’s future plans include a final optimization study aimed at formulating a lower capital expenditure development plan. Furthermore, discussions with Aquila, a subsidiary of China Baowu Steel Group Corporation Limited and holder of the remaining 50% interest in the project, have resulted in a term sheet outlining collaborative efforts for the venture. This includes infrastructure provision and offtake arrangements, positioning Stanmore as the majority owner and manager of the joint venture.

Located near Moranbah, Queensland, the Eagle Downs project boasts a substantial resource base capable of supporting a 40+ year mine life. With all necessary regulatory approvals in place and infrastructure ready for immediate construction, the project stands as one of the last undeveloped areas targeting the premium Moranbah Coal Measures. The primary product, a low-volatile premium hard coking coal, positions Eagle Downs as an attractive proposition for potential customers.

The acquisition of Eagle Downs represents a strategic milestone for Stanmore Resources, enhancing its portfolio in the competitive coal market. By leveraging existing assets and forming strategic partnerships, Stanmore is poised to optimize the development of Eagle Downs, offering a sustainable and capital-efficient pathway for growth. This move not only solidifies Stanmore’s position in the industry but also underscores the ongoing vitality of coal as a key resource in the global energy mix.