Whitehaven Coal is selling a 30% stake in its Blackwater coal mine to Japanese steel giants Nippon Steel and JFE Steel Corporation for US$1.08 billion (~A$1.6 billion).
The company entered into separate deals with Nippon Steel and JFE Steel Corp to sell stakes in the mine of 20% and 10%, respectively.
Both companies are long-term consumers of the metallurgical coal produced by the Blackwater mine, and as part of the deal, Whitehaven has entered into offtake agreements with each company.
Whitehaven CEO Paul Flynn said the proceeds from the sell-down would strengthen Whitehaven’s balance sheet, “providing enhanced flexibility as we assess the range of competing opportunities for capital in line with our capital allocation framework’’.
Australia is the number one supplier of coal for Japan’s steelmakers who, given growing competition from India and Indonesia, have been concerned by the wave of consolidation underway in Australia.
Upon completion of the sale, Blackwater will be owned by Whitehaven, Nippon Steel and JFE Steel via an unincorporated joint venture, managed by Whitehaven. Whitehaven expects the deal to be completed in the first quarter of next year.
News of the Blackwater sale came as Whitehaven reported a 72% fall in underlying net profit to $740 million, on revenue of $3.82 billion, which was down 37%. Net profit attributable to shareholders was 87% lower at $355 million.
Whitehaven will pay a fully franked 13-cent dividend, sharply down from last year’s 42-cent final dividend. The company had net debt at the end of June of $1.3 billion.
The company provided no specific guidance for the current year.
Higher coal prices anticipated
The thermal and metallurgical coal producer is, however, predicting a strong outlook for commodity prices.
“The forecast structural shortfall in global metallurgical coal production, particularly due to long-term production constraints of hard coking coal from Australian producers, combined with increased seaborne demand from India, is anticipated to drive higher metallurgical coal prices over the near and long term.
“Whitehaven’s metallurgical coal portfolio will benefit from the supply constraints expected in both the near and longer term.
“Demand for high calorific value (CV) thermal coal remains robust in Whitehaven’s mature and emerging markets in Asia to fuel HELE (high-efficiency, low-emissions) power generation.
“The structural supply shortfall in seaborne high CV thermal coal continues to grow as a result of under-investment in new supply and depletion of existing supply which is supportive of medium and long-term high CV thermal prices.’’