Another Bowen Basin mine to be sold
WESFARMERS is considering selling a coal asset in the Bowen Basin.
It has been reported in The Sydney Morning Herald that Wesfarmers is looking to sell its Curragh mine (about 30km north of Blackwater).
The sale of Curragh and Bengalla (NSW) mines is expected to fetch Wesfarmers about $2 billion.
While Wesfarmers did not name the mines it is considering offloading, the company did issue a statement on Wednesday indicating that there had been expressions of interest in its coal assets.
"Wesfarmers has previously disclosed that it is evaluating all strategic options for the resources business with a view to maximising shareholder value,” it said in the statement.
"Wesfarmers is continuing to consider a broad range of options, from operational to divestment initiatives, including recently seeking expressions of interest from external parties who may want to acquire the coal assets.
"There is no certainty this process will lead to a transaction and Wesfarmers will update the market further if and when appropriate.”
The company has an opportunity to get a good price as coking coal prices skyrocket.
The coking coal price has increased to more than $US300 a tonne after China cut its supplies.
It's well above the price of about $US90 a tonne set only a few months ago.
The changing face of the Bowen Basin
While the mining sector bust saw many multinational mining companies opting to divest assets, more nimble operators have leapt at the chance to fill the void.
Entering the sector at the bottom of the cycle, they will be hoping to ride it through to the top before considering an offload.
Leading the transformation was Stanmore Coal, which bought the Isaac Plains coal mine for $1 in 2015 from Vale and Sumitomo. After opening in May, it posted $12.7m in revenue last month.
TerraCom looks likely to follow suit, if the State Government approves its proposed purchase of Rio Tinto's Blair Athol coal mine, also for $1.
But Stanmore Coal's Nick Jorss, who this week transitioned from the managing director to deputy chairman, said the window of opportunity for pocket-change purchases may be closing, following the rapid coal price rise the past few months.
"I suppose the question is now with the prices shooting up so quickly whether that window will close or not," he said.
But that wasn't to say the chance for junior companies to succeed in the Bowen Basin had closed.
In fact, Mr Jorss' transition to deputy chairman this week was geared at putting him in a position to scout out new acquisitions for the company. While he didn't state if he had eyes on any new mine in particular, he confirmed the focus would be entirely on the Bowen Basin. "It's the best place to be for high quality metallurgical coal," Mr Jorss said. But just as the company "had to kiss a lot of frogs" before settling on the Isaac Plains project, any new acquisition would first need to tick the right boxes.
What set Isaac Plains apart was the potential to introduce a new mine model, which saw the cost of production cut by 35% per tonne of coal.
It also provided the chance to expand into the adjacent Isaac Plains East, as well as underground.
TerraCom looks likely to emulate the success story of Isaac Plains, after it secured Foreign Investment Review Board approval for its planned purchase of Rio Tinto's Blair Athol coal mine this week. The last approval it needs to secure is from the state government.
These two projects appear to share a number of key advantages.
Just as Stanmore Coal acquired $350m worth of infrastructure through its $1 purchase, TerraCom believed the infrastructure it would secure and management plans already devised could see it reopen Blair Athol by December.
Each company had also set out with plans to operate at far less capacity than previous owners.
At Isaac Plains' peak it produced 2.8m tonnes of coal a year, however the Stanmore Coal model is on track to produce 1.1m tonnes this financial year, although Mr Jorss said climbing prices could see it ramp up production to 1.5m/t.
While Rio Tinto's peak production at Blair Athol was in 2009 with 11.3m tonnes exported, TerraCom would significantly reduce the tonnages, with 2m tonnes planned to be produced in the first year.
However further details about their operating structure have not yet been revealed.
"My thinking on the market is out of adversity comes opportunity. When some of the big guys are struggling to make their business models work that provides some good opportunities for smaller guys like us who can be a little bit more nimble and with a lower cost base to come in and make a success of something," he said.
Who are the juniors?
- Stanmore Coal purchased Isaac Plains coal mine from Vale and Sumitomo in 2015 for $1. It's looking for "further opportunities" in the Bowen Basin.
- Taurus Fund Management purchased a major stake in Foxleigh coal mine from Anglo American this year. Speculation is mounting it may soon switch to a labour hire workforce.
- TerraCom has pans to purchase Blair Athol coal mine from Rio Tinto for $1, subject to state government approval. It also has a number of exploration tenements.
- Australian Pacific Coal has plans to purchase the Dartbrook mine from Anglo American. It may also look to the Bowen Basin for opportunities.
- Batchfire Resources plans to purchase the Callide thermal coal mine from Anglo American.