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Street Talk

Meet BHP’s $5b coal auction’s under-the-radarJapanese kingmakers

Sarah Thompson, Kanika Sood and Emma Rapaport

Jul 24, 2023 – 8.00pm

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Bidders in the $US3.5 billion-plus ($5.2 billion) auction forBHP’s Queensland coal mines – Blackwater and Daunia – are competing to woo fiveJapanese commodities houses to join their camps.

Sourcestold Street Talk that the commodities players – some of the biggest names inthe sector – are in high demand ahead of binding bids in early August. Thesales process is being run by Macquarie Capital.

TheJapanese firms being targeted by suitors include steelmakers JFE and Nippon Steel,and trading houses Marubeni and Sojitz. A fifth, Itotchu, is understood to beworking with Whitehaven Coal.

Blackwater is one of nine metallurgical coal mines inQueensland’s Bowen Basin.

Sourcessaid the Japanese players’ popularity among Daunia and Blackwater’s suitorsdrew from three factors. First, their deep pockets would be much-needed fundingsupport for the winning bidders. The initial bids landed between $US3.5 billionto $US5 billion – that price tag puts the two BHP mines among the biggestM&A plays for most shortlisted parties including Whitehaven, YancoalAustralia, Coronado and BUMA Australia.

Second,the Japanese players know Australian coal well, and the country has been vocalabout its reliance on imports. Perhaps most importantly, if a bidder for thetwo mines succeeds in pinning down a Japanese partner they would have alsolocked in a buyer for the coal produced by the two mines.

As an example, JFE Steel ticks all three boxes. Its parent, JFEHoldings is capitalised at ¥1.3 trillion ($13 billion) on the Tokyo disallowed, and it already has an offtake agreement to buy coal produced byBlackwater.

Itwould be interesting to see if the shortlisted bidders succeed in winning overa Japanese bid partner come August, more so because the Japanese government,last year, was critical of Queensland’s coal royalty tax regime.

Shouldthe Japanese interest in the two mines hold, BHP’s auction would also become ageopolitical temperature check on regulatory support for big-ticket Asianinvestment in Australian coal. Japan, China and India are among the biggestcoal consumers in the world, and Daunia and Blackwater is the biggestAustralian coal auction to pass Street Talk’s desk in some time.

StreetTalk has previously reported the shortlist has included Coronado GlobalResources, Yancoal, New York-listed Peabody Energy, BUMA and Whitehaven.Sources said bidders would be thinking hard about price, given coal prices hadticked down, and macroeconomic condition worsened since Macquarie collectedindicative bids. Blackwater’s billion-dollar rehabilitation liability is also asticking point for both buyers and the seller.

Blackwaterand Duania have landed on the auction block after The Australian FinancialReview revealed BHP lobbied the Queensland government toamend the 54-year-old legislation governing the eight mines within its BHPMitsubishi Alliance to make them easier to sell. They are deemed to produce theworld’s best coking coal for steel-making.

Ithas already exited its interest in Queensland’s South Walker Creek and Poitrelcoal mines that it owned with Mitsui. The buyer, Stanmore, now owns assets nearDaunia, which led to it being tipped to bid.