Coking and Thermal coal prices...where are we going?, page-749

PeabodyEnergy’s $BTU recent invocation of a MaterialAdverse Change (MAC) clause in its agreement to acquire the Moranbah North mine from Anglo American has put a spotlight on serious underground access issues and the uncertain future of one of Queensland’s most technically complex coking coal operations.

Thedispute follows an extended shutdown at Moranbah North, where elevated gaslevels—possibly from a spontaneous combustion event—have prevented Anglo fromaccessing underground workings since early April. As of early May, regulatorsand mine inspectors remain unable to confirm when operations can resume.

Aconfidential advisory from Queensland’s mine inspectorate, reviewed by The Coal Trader, highlights the severity of the situation. The lead inspector advised that the safest course would be to remotely seallongwall 113 and fully inertise the goaf, citing persistent ignition risks and limited confidence in the effectiveness of the current strategy.

“Thecurrent strategy still has residual risk of either undetected spontaneouscombustion or other unknown ignition source,” the inspector wrote. “My adviceto the SSE (Senior Site Executive) is to consider remote sealing LW113 andfully inertise.”

Sucha step would effectively write off a portion of the mine’s production for aprolonged period—something any acquirer would need to reassess. While MACclauses are often controversial, legal expert Robert Milbourne told analysts on a call last week that invoking one in this case may not be without merit, depending on the technical facts.

“Totrigger a MAC under UK law, you need something unforeseeable with a long-termadverse effect,” he said. “A full-year shutdown with no underground accesscould certainly meet that threshold.”

Technicalopinions from non-affiliated engineers we have consulted seem to vary onpotential length of outage. If the longwall panel does indeed require sealing,another 2-3 months minimum outage seems to be consensus. That would comeextremely close to the August deadline for deal closing - whether we use the90-day clock started by Peabody or the 9-month timeline stated in the purchaseagreement.

Furthermore,opinions vary on the salvageability of the longwall itself. If the ignition wasin the goaf (for any laypersons, that means the mined-out area in anunderground mine) then it may be possible to salvage the equipment andrefurbish/redeploy at a later time. If that is not possible, then a newlongwall must be ordered, which would take at least 12 months to acquire, andcertainly meet Mr. Milbourne’s stated standards for triggering a MAC.

Weshould emphasize once again here that the Moranbah North deal is governed by UK law, which offers a well-developed framework for resolving MAC disputes. Anglo, headquartered in London, is understood to have opted for UK jurisdiction in the contract. Milbourne pointed to the 2021 MirabellaNickel case, where a buyer attempted to exit a $1 billion deal under similar terms. The UK High Court ruled in favor of the seller, awarding damages now estimated at up to $500 million.

WhilePeabody’s move has sparked debate, Milbourne suggested it could also reflect aneffort to renegotiate terms rather than terminate outright. “If the technicalproblems are serious and long-lasting, invoking a MAC could be a legitimatecontractual step. But if the mine restarts soon and BTU can’t provemateriality, the legal risk is high,” he said.

Analystsfollowing the deal expect developments from Anglo to be made public withinweeks, not months. As Milbourne noted, “If access isn’t restored soon, theconversation shifts from legal interpretation to valuation—and it’s reasonablefor a buyer to seek clarity before proceeding.” But should this proceed to thelegal route, a resolution could take 2-3 years to materialize.

As we stated in our last BTU/Anglo piece, if the mine comes back online soon - no harm, no foul, and the deal is completed. If a new longwall is needed, that’s $250-300M off the top, plus another $250-300M in lost EBITDA as the company endures the 12 month wait time for new equipment. And if the mine is closed indefinitely, well, to quote a pal of mine, “if that’s not a MAC then I don’t know what is.”

-MW