TIDMS32
RNS Number : 2242O
South32 Limited
03 November 2016
03 November 2016
SOUTH32 AGREES TO ACQUIRE PEABODY'S METROPOLITAN COLLIERY
South32 Limited (ASX, LSE, JSE: S32) (South32) advises that it
has entered into a binding agreement to acquire the Metropolitan
Colliery and associated 16.67% interest in the Port Kembla Coal
Terminal (PKCT)(1) from an Australian subsidiary of Peabody Energy
Corporation (Peabody).
South32 Chief Executive Officer Graham Kerr said: "The
Metropolitan Colliery is a natural fit within our portfolio and the
acquisition is consistent with our strategy to invest in high
quality mining operations where we can create value. The mine's
recently upgraded infrastructure and close proximity to Illawarra
Metallurgical Coal will enable us to further optimise performance
and unlock unique blending and resource synergies."
"We look forward to the Metropolitan team joining South32." Mr
Kerr said.
Transaction highlights
-- Agreed offer includes fully funded, cash consideration of US$200M(2) and a mechanism whereby both companies will
share commodity price upside in the first year of production, or on a minimum 1.3Mt(3), should metallurgical coal
prices exceed an agreed forward curve;
-- Integrates a well-capitalised, underground operation that adds an average 1.9Mtpa(4) of saleable metallurgical
coal production;
-- Leverages our regional model and marketing capability; and
-- Unlocks unique blending and resource synergies, including the potential development of our CCL724 mining lease,
which contains a 71Mt Coal Resource(5) adjacent to the Metropolitan Colliery.
About South32
South32 is a globally diversified mining and metals company with
high quality operations in Australia, Southern Africa and South
America. Our purpose is to make a difference by developing natural
resources, improving people's lives now and for generations to
come. We are trusted by our owners and partners to realise the
potential of their resources. We have a simple strategy to maximise
the potential of our assets and shareholder returns by optimising
our existing operations, unlocking their potential and identifying
new opportunities to compete for capital.
Further information
INVESTOR RELATIONS
Alex Volante Rob Ward
T +61 8 9324 9029 T +61 8 9324 9340
M +61 403 328 M +61 431 596
408 831
E Alex.Volante@south32.net E Robert.Ward@south32.net
MEDIA RELATIONS
Diana Wearing James Clothier
Smith T +61 8 9324 9697
T +61 8 9324 9198 M +61 413 319
M +61 436 482 031
290 E James.Clothier@south32.net
E Diana.Smith@south32.net
Further information
on South32 can
be found at www.south32.net
JSE Sponsor: UBS South Africa (Pty) Ltd
03 November 2016
FACT SHEET
The offer
We have entered into a binding agreement to acquire Peabody's
Metropolitan Colliery and associated 16.67% interest in PKCT, which
we currently manage. As part of the offer:
-- We will pay a cash consideration of US$200M to Peabody on completion;
-- The companies will share additional cashflow on a 50:50 basis should metallurgical coal prices exceed an agreed
forward curve ("Contingent Value");
-- The Contingent Value mechanism:
-- Is based on coal sales from the Metropolitan Colliery in the first 12 months following completion of the
transaction, or a minimum 1.3Mt;
-- Refers to an agreed metallurgical coal price forward curve, including: March 2017 quarter US$160/t, June
2017 quarter US$130/t, September 2017 quarter US$120/t and December 2017 quarter US$115/t; and
-- Is net of royalties, applicable product premia/discounts and tax impacts.
-- The offer is subject to approval from the Australian Competition and Consumer Commission; and
-- Completion is anticipated in the March 2017 quarter.
The transaction will be funded from existing cash reserves and
will not compromise a core priority of our capital management
framework, being the retention of a strong balance sheet and
investment grade credit rating. At 30 September 2016, we held net
cash of US$551M(6) .
The Metropolitan Colliery
Overview
* A single-seam, underground longwall metallurgical
coal mine located in the Southern Coalfields in New
South Wales, Australia
* Coal is mined from the Bulli seam and subsequently
crushed, screened and washed on site
* Well-capitalised operation, having received US$210M
in growth capital from 2010 to 2015
--------------- -------------------------------------------------------------
Location
* Helensburgh, approximately 30km to the north of
Wollongong and 10km to the east of South32's Appin
Colliery
--------------- -------------------------------------------------------------
Geology
* Tenure hosts the Illawarra Coal Measures
* Currently mining the Bulli seam
--------------- -------------------------------------------------------------
Resources
and Reserves * 25Mt of Proven and Probable Coal Reserves(a)(b)
* Unlocks a further 71Mt of Coal Resource at Illawarra
Metallurgical Coal's adjacent CCL724 lease
--------------- -------------------------------------------------------------
Production
and Costs * Underground longwall operation with proven historical
annual saleable coal production capacity of 2.3Mtpa
* At historical production rates, unit costs, including
sustaining capital expenditure, are expected to be
marginally lower than our existing Illawarra
Metallurgical Coal operation
--------------- -------------------------------------------------------------
Processing
* All coal is washed on site at a 480tph preparation
plant
* Electricity is sourced from the NSW grid and water is
sourced from Sydney Water
--------------- -------------------------------------------------------------
Logistics
and Marketing * Export coal is transported via Pacific National rail
to PKCT and domestic coal is transported via rail to
domestic steelworks
--------------- -------------------------------------------------------------
Product
* Unique blending opportunity with South32's existing
products
* Approximately 700ktpa of domestic sales are largely
semi hard coking coal with a minor quantity of
pulverised coal injection (PCI)
* All remaining tonnes to be sold to export markets as
low volatile, premium hard coking coal
--------------- -------------------------------------------------------------
Workforce
* Metropolitan has approximately 375 employees and
contractors
--------------- -------------------------------------------------------------
(a) As at 31 December 2015. This Foreign Estimate is reported in
accordance with the US SEC Industry Guide 7, Peabody Energy Corp.
10-K filing with the US SEC, 16 March 2016.
(b) Metric Tonnes (Mt), converted from Short Tons using a factor of 0.907.
Cautionary statement:
-- The estimates of Coal Reserves for the Metropolitan Colliery mine are foreign estimates under the ASX Listing
Rules and are not reported in accordance with the JORC Code.
-- Competent persons have not done sufficient work to classify the foreign estimates as Coal Resources or Coal
Reserves in accordance with JORC Code.
-- It is uncertain that following evaluation and further exploration that the foreign estimates will be able to be
reported as Coal Resources or Coal Reserves in accordance with the JORC code.
Location map
For the release with the location map, please refer to the
announcement on the company's website hosted at www.south32.net
Operating information
Metropolitan Colliery Performance(a) CY14 CY15
Coal production (Mt) 2.3 1.9
====================================== ===== =====
Coal sales (Mt) 2.2 1.8
====================================== ===== =====
Realised coal sales price
(US$/t) 97 78
====================================== ===== =====
Operating unit cost, including
sustaining capital expenditure
(US$/t)(b) 82 81
====================================== ===== =====
Sales revenue (US$M) 212 142
====================================== ===== =====
Underlying EBITDA (US$M) 39 8
====================================== ===== =====
Capital expenditure (US$M) 25 14
====================================== ===== =====
Growth/Major capital projects
(US$M) 18 4
====================================== ===== =====
Sustaining capital expenditure
(US$M) 7 11
====================================== ===== =====
(a) Peabody Energy Corp. 8-K filing with the US SEC, 13 April
2016. Metric Tonnes (Mt) converted from Short Tons using a factor
of 0.907. Peabody Energy Corp prepares financial information in
accordance with US GAAP and using their accounting policies.
(b) Operating unit cost, including Sustaining capital
expenditure is Revenue less Underlying EBITDA plus Sustaining
capital expenditure, divided by sales volume. Operating unit cost
may change as a result of acquisition accounting and the
application of South32 accounting policies from acquisition
date.
In FY17, saleable coal production of 1.3Mt is anticipated as two
longwall moves are scheduled across the year and additional
underground development activities will reduce longwall
availability and utilisation rates. FY18 saleable production is
expected to increase to 1.7Mt as longwall performance increases
towards historical rates. The lower production rate and expenditure
on underground development and exploration activities across FY17
and FY18 will temporarily increase unit costs. Updated production
and unit cost guidance for the expanded Illawarra Metallurgical
Coal operation will be provided with our December 2016 half year
financial results.
Coal Reserve - clarifying statements
The estimates of Coal Reserves for the Metropolitan Colliery
mine are foreign estimates under the ASX Listing Rules reported in
accordance with the US SEC Industry Guide 7, Peabody Energy Corp.
10-K filing with the US SEC, 16 March 2016.
The categories of Coal Reserve classification used are in
accordance with the US SEC Industry Guide 7. The Coal Reserve
reported in accordance with Appendix 5A of ASX Listing rules (The
JORC Code) requires reporting of Marketable Coal Reserves in
conjunction with Coal Reserves including basis of the predicted
yield. US SEC Industry Guide 7 only requires to report Recoverable
Coal Reserves. In this case, the Recoverable Reserves may be read
as Marketable Coal Reserves.
South32 considers these estimates to be both relevant and
material to South32 given that this transaction has the potential
to increase the production capacity of the existing South32
Illawarra Metallurgical Coal operation (a material project to
South32) by greater than 10%.
Reliability of estimate:
South32 has experience operating within the same coalfield.
South32's key technical and operational personnel, including the
Coal Reserves Competent Person, conducted site visits as part of
the due diligence process. Key modifying and operating cost factors
are based on operational experience and have been benchmarked to
South32's existing operations. All infrastructure is in place to
operate the mine at the stated capacity. Environmental factors have
been considered and relevant approvals are in place to enable the
extraction of the stated reserves. Peabody Energy reported Coal
Reserves in compliance with US SEC Industry Guide 7 following an
independent audit carried out by Palaris Australia Pty. Ltd.
The basis for the estimate as provided to South32 consists of a
geological database incorporating seam intersections, coal quality,
surface topography and roof and floor lithology derived from
exploration boreholes, in seam strip samples, seismic data and
other relevant points of observation. Mining and processing
recoveries are based on current and historical operational
experience.
South32 believes that the information provided is the most
recent available.
Following completion of the transaction it is South32's
intention to conduct a work program to increase confidence in the
resource and reserve and to ensure that resources and reserves are
reported in accordance with the JORC Code. The work program will
include additional exploration by means of drilling and seismic
surveys and is anticipated to be completed within three years and
will be funded using internal cash reserves.
Advisors
South32 was advised by J.P. Morgan Australia Limited as
financial adviser and Herbert Smith Freehills as legal adviser.
Notes
(1) South32 currently owns 16.67% of PKCT and manages the operation.
(2) Subject to customary working capital adjustments.
(3) Should 1.3Mt of volume not be achieved in the 12 months post
completion, the Contingent Value mechanism shall continue until
1.3Mt is achieved. In any event, the Contingent Value mechanism
will cease by 31 December 2018.
(4) Represents average saleable coal production from CY11 to
CY15, but excludes CY13 given the impact of once-off events.
(5) The total Coal Resource consists of 2.2Mt of Measured, 12Mt
of Indicated and 57Mt of Inferred Coal Resources from the Bulli
Seam. This Resource has been declared as part of South32's Annual
Resource declaration for Illawarra Metallurgical Coal in the FY16
Annual report (www.south32.net).
(6) Provisional unaudited net cash balance as at 30 September 2016.
Forward-looking statements
This release contains forward-looking statements, including
statements about currency exchange rates, commodity prices,
production forecasts, plans, development decisions, exploration and
capital expenditure. These forward-looking statements reflect
expectations at the date of this release; however, they are not
guarantees or predictions of future performance. They involve known
and unknown risks, uncertainties and other factors, many of which
are beyond our control, and which may cause actual results to
differ materially from those expressed in the statements contained
in this release. Readers are cautioned not to put undue reliance on
forward-looking statements. Except as required by applicable laws
or regulations, South32 Limited does not undertake to publicly
update or review any forward looking statements, whether as a
result of new information or future events. Past performance cannot
be relied on as a guide to future performance.
Competent persons' statement
The information in this announcement that relates to
Metropolitan Colliery Recoverable Coal Reserves is based on and
fairly represents the information supplied by Peabody Energy as a
foreign estimate and reported in accordance with ASX listing rule
5.12 by Ms. Jasmine Gale and Mr. Matthew Rose and is an accurate
representation of the available data and studies for the
Metropolitan Colliery mine. Ms. Gale and Mr. Rose are employees of
South32 and members of the Australasian Institute of Mining and
Metallurgy. Ms. Gale and Mr. Rose have sufficient relevant
experience for the type of deposit and method of extraction to
qualify as competent persons in accordance with the Australasian
Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves (The JORC Code). Both Ms. Gale and Mr. Rose consent to
the inclusion in the report of the matters based on their
information in the form and context in which it appears.
The information in this announcement that relates to the
estimates of the Illawarra Metallurgical Coal Resource for the
CCL724 lease was declared as part of South32's Annual Resource
declaration for Illawarra Metallurgical Coal in the FY16 Annual
report (www.south32.net). South32 is not aware of any new
information or data that materially affects the information
included in this announcement. All material assumptions and
technical parameters underpinning the resource estimate in this
announcement continue to apply and have not materially changed.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACQUOONRNVAARRA
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