BHP agrees divestment of stake in Mitsui Coal venture

BHP has agreed to divest its 80% interest in BHP Mitsui Coal (BMC), an operated metallurgical coal joint venture in Queensland.

The FTSE 100 mining giant said Stanmore SMC Holdings, a wholly-owned subsidiary of Stanmore Resources, was acquiring all of the shares in Dampier Coal Queensland from BHP Minerals for cash of up to $1.35bn (£1bn).

It said the purchase price would comprise $1.1bn cash on completion, $100m in cash six months after completion, and the potential for up to $150m in a price-linked earnout payable in the 2024 calendar year.

Excluding the price-linked earnout, that represented an enterprise value-to-EBITDA multiple of 6.9x.

The sale remained subject to the satisfaction of certain conditions, including customary competition and regulatory approvals.

That included approval from the Foreign Investment Review Board, with Stanmore Resources agreeing to a break fee payable if certain conditions were not satisfied.

Stanmore Resources would assume economic and operating control of BMC on completion, including its share of all current and future liabilities of BMC, subject to certain limited exceptions.

Completion was expected in the middle of 2022.

BHP said it would continue to operate BMC until completion, and work closely with Stanmore Resources to ensure a successful transition of ownership.

It said it would also provide certain transitional services to Stanmore Resources for a short period of time after completion.

“This transaction is consistent with BHP's strategy, delivers value for our company and shareholders and provides certainty for BMC's workforce and the local community,” said Edgar Basto, president of Australia minerals at BHP.

“As the world decarbonises, BHP is sharpening its focus on producing higher quality metallurgical coal sought after by global steelmakers to help increase efficiency and lower emissions.”

Basto said South Walker Creek and Poitrel were “well-run assets” that had been an “important part of our portfolio” for a number of years.

“Under this agreement, BMC will transition to Stanmore Resources, an ASX-listed company that has established relationships with traditional owners and strong engagement with their workforce and local communities.

“Stanmore Resources share our focus on safety performance and culture and support Australia's commitments under the Paris Agreement.”

Net proceeds would be incorporated into, and evaluated in accordance with, BHP’s capital allocation framework to determine the appropriate manner to maximise value to shareholders via future dividends, share buybacks, or a combination of both.

Stanmore Resources is an ASX-listed business with operations in Queensland's Bowen Basin, and had committed to oversee and operate BMC in compliance with industry best practice in relation to safety and environmental performance, as well as regulatory, community and workforce engagement.

Golden Energy and Resources, a Singapore-listed company and Stanmore’s major shareholder, had guaranteed Stanmore’s obligations to pay the purchase price and any break fee obligations to BHP, up to $600m.

The review process for New South Wales Energy Coal is progressing, BHP added, in line with the two-year timeframe announced in August 2020.

BHP said it remained open to all options, and was continuing to consult with relevant stakeholders.

At 0859 GMT, shares in BHP Group were down 0.21% at 1,904.4p.