U.S. coal giant Peabody Energy has hired UBS to find a buyer for its Wilkie Creek coal mine in Australia, in a move that’s likely to kindle interest from Asian nations vying to secure coal supply for their growing fleet of power plants.
Peabody said the decision to sell Wilkie Creek, which produces more than 2 million metric tons of thermal coal annually, was taken in the final three months of last year following its 4.9 billion Australian dollar (US$5.1 billion) takeover of Macarthur Coal.
The potential sale of Wilkie Creek was disclosed by Peabody in its full-year earnings announcement Tuesday. Wilkie Creek has a resource of over 500 million tons of coal.
Thermal coal from Wilkie Creek is railed to port in Queensland’s state capital Brisbane and then exported to Japan, Taiwan and South Korea for use in power generation. However, the mine’s location in the Surat Basin of southeast Queensland means it lies outside Peabody’s core operations in the Bowen Basin, which now include Macarthur’s producing mines.
Rapid industrialization in China and India is driving heavy investment in coal-fired power generation, supporting thermal coal prices in the Asia-Pacific region and boosting valuations of mines in countries like Australia and Indonesia, which account for much of the world’s seaborne coal trade.
Australia is the world’s largest coal exporter by volume, with vast reserves of thermal coal burnt to generate electricity and coking coal used to make steel. These reserves have made Australia a favored destination for foreign investment, despite sovereign risk concerns as the federal government taxes profits from coal mining more heavily and puts a price on carbon.
Recent deals for producing Australian coal mines have been struck at an enterprise value around A$3.19 per ton of thermal coal resource, analysts say, while assets in development have fetched a more conservative A$0.77 per ton due to the greater risks involved.
In another sign that interest in Australian coal is intensifying, Bandanna Energy said Wednesday it has received a non-binding offer to take a stake in an undeveloped coal project in the Bowen Basin after allowing several parties, including South Korea’s Samtan, to carry out due diligence.
A reliance on coal imports has led Korean, Indian and Chinese companies to scour the Asia-Pacific region for coal deposits that can be developed for export, although competition is intensifying with Western miners also looking to buy resources that can be sold at a higher margin than in traditional markets like North America.
Last year, resources deals accounted for 44% of the US$65.7 billion-worth of inbound merger and acquisition activity to Australia, data from Dealogic shows. Coal companies featured among the biggest deals, including Peabody’s takeover of Macarthur Coal and a joint offer by Rio Tinto and Mitsubishi Corp. to take full control of Coal & Allied Industries, which valued Australia’s sixth-largest coal miner by output at A$10.6 billion.
Interest from China, which overtook Japan as the world’s largest coal importer last year, has also strengthened with Hong Kong-listed Yanzhou Coal Mining Co. offering to combine most of its Queensland and New South Wales assets with those of Gloucester Coal in a deal that values the Australian miner at A$2.2 billion.
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