M and A in Coal

BHP's oil and gas divestment

Overnight, BHP divested its entire oil and gas operations. The assets merged with Woodside creating a global top 10 oil and gas company. This was driven by BHP's desire to strive for a more green business. No doubt BHP are looking to divest its coal operations. BHP is Australia's largest coal producer, with this from BHP's recent financial report.

Speculation
Mount Arthur has been the subject of possible acquisitions for WHC, but could a bigger deal be cooking? Peabody has been thrown as the leader in the mix of suitors, but maybe its worth throwing the net wider. Below is the market cap of Australia's top producers and peabody.

BHP's Cerrejón divestment

BHP's recent divestment of the Cerrejón coal mine in Columbia gives some idea of what a sale may be worth. "Glencore has reached agreement with each of them on substantially the same terms to acquire their respective 33.3% interests. The transaction has an economic effective date of 31 December 2020, with an aggregate purchase consideration of c. US$588M. We (Glencore) anticipate the cash generated by the operation to reduce the effective aggregate cash consideration to approximately US$230M, making the estimated investment payback period less than 2 years from closing." https://www.glencore.com/media-and-insights/news/glencore-agrees-to-acquire-jv-partners-shares-in-the-cerrejon-mine-and-strengthens-climate-commitments

Valuing BHP's coal assets (crudely)
BHP's coal assets returned an EBITDA of US593 in the previous year. Very crudely, lets value that similarly to the Glencore deal - US593 X 3 (more than Glencore deal) / .73 (AUD/USD) = A$2.4 billion. Note, this figure is on par with WHC's market cap.


The potential dealThe woodside deal gave BHP shareholders 48% of the final corporation, with existing WPL shareholders holding the remaining 52%. As demonstrated, the WHC market cap and the hypothesized BHP coal market cap are similar and another deal similar to woodside one may be on the cards. This would create an entity valued at $5 billion and around 80 million tonnes per annum. The size of the company would attract global investment funds and be less prone to the divestment by ESG related concerns in the domestic market.