Falling coal price unlikely to muddy Whitehaven’s Blackwater stake sale

BRIDGET CARTER

Whitehaven has signalled it is in talks with suitors interested in about 20 per cent of the Blackwater mine, but it may sell down a larger holding. Picture: Bloomberg

Whitehaven Coal is understood to be targeting August for an announcement surrounding a selldown of a stake in its Blackwater coal mine that it purchased as part of a broader $6.4bn acquisition from BHP.

The company has signalled it was in talks with suitors to buy about 20 per cent of the mine, but may sell down a larger holding.

An announcement in August would mean that a deal would not interfere with its audited full-year result and would be announced in time for the annual general meeting.

Whitehaven’s market value is about $6.8bn and its share price is $8.03, falling slightly in line with the slight decline in the metallurgical coal price. The fall in the price of metallurgical coal is in line with a broader sell-off of commodities across the board, particularly oil, as the Organisation of the Petroleum Exporting Countries (OPEC) said it would wind back production cuts to oil later this year.

The thermal coal price has fallen more sharply, but met coal has also slightly come off the boil, down 15 per cent from the start of the year to $US254.50 a tonne late last week. The risk is that Whitehaven leaves the sale too late should the coal price fall further, but the general market view is that the price of coal is still largely up strongly over time.

Earlier, the understanding had been that a few parties – a couple from Japan and one from India – could have been about to surface as buyers of a stake.

While the identities are unknown, sources pointed to steel producer JSW Group of India or groups like Nippon or Mitsui out of Japan.

Whitehaven Coal CEO Paul Flynn. Picture: John Feder

When Whitehaven last year bought BHP’s Queensland-based Daunia and Blackwater coal mines, which produce metallurgical coal, the suggestion was Blackwater accounted for most of the value of the $US3.2bn deal – as much as $US2.5bn.

Whitehaven announced on April 2 that it had completed the acquisition of Daunia and Blackwater. Chief executive Paul Flynn had earlier said the deal to acquire BHP’s Daunia and Blackwater mines would transform the company into a leading supplier of metallurgical coal for key export markets, where it would earn about 70 per cent of its revenue from export coal.

He said there had been strong interest in possible plans to sell a 20 per cent stake in the Blackwater mine to global steelmakers as strategic joint venture partners, adding a high price was likely to be paid for partial ownership of the asset.

As part of the transaction, Whitehaven paid $US2.1bn upfront, less a $US100m deposit.

Deferred consideration of $US500m, $US500m and $US100m was payable on the first, second and third anniversaries of the completion date. Contingent payments of up to $US900m comprised annual payments dependent on realised pricing exceeding agreed thresholds.

Whitehaven reported a 58 per cent fall in revenue for the six months to December to $1.6bn and an 86 per cent decrease in net profit to $257.6m as coal prices fell from their giddy heights during the period.