South32 Ltd. (S32.AU) said competition concerns had scuttled a US$200 million deal to buy a metallurgical coal mine in the southern coalfields of Australia’s New South Wales state, together with a stake in a coal port, from Peabody Energy Corp. BTU, -1.68%
South32, the coal and metals miner spun out of BHP Billiton Ltd. (BHP.AU) in 2015, agreed in November to buy Peabody’s Metropolitan Colliery and an associated 17% stake in the Port Kembla Coal Terminal, located south of Sydney.
On Tuesday, South32 said the deal won’t proceed following the Australian Competition and Consumer Commission’s concerns that the proposed deal may substantially reduce competition in coal supply to Australian steelmakers.
“South32 has always maintained that metallurgical coal is a globally traded commodity,” the company said in a regulatory filing. “Given this, South32 is not prepared to make significant concessions in favor of Australian steelmakers that would likely be required to mitigate the competition concerns.”
The underground mine, which has a capacity to produce 2.3 million metric tons of coal a year, is six miles to the east of South32’s Appin Colliery mine.
South32 already manages the Port Kembla Coal Terminal on behalf of a consortium of miners that includes Glencore PLC (GLEN.LN).
South32’s planned deal with Peabody also involved setting up a mechanism to share the benefits of further possible strength in coal prices, whereby extra cash flow would be split on sales above agreed prices.
“We are surprised that South32 and the ACCC reached an impasse, given both the physical synergies and the global nature of the metallurgical coal markets,” said Peabody President and Chief Executive Glenn Kellow. “On the other hand, we see continuing opportunities given Metropolitan’s quality coking coals and port location, and our objective will be to operate the mine while maximizing returns in the international marketplace.”