South32 Announces Sale of Illawarra Metallurgical Coal for US$1.65 Billion

South32 Limited has finalized a significant deal to sell Illawarra Metallurgical Coal for a total consideration of US$1.65 billion. The transaction, aimed at reshaping South32’s portfolio towards commodities critical in the transition to a low-carbon future, marks a strategic move for the company.

Transaction Details

South32 has entered into a binding agreement to sell Illawarra Metallurgical Coal to an entity owned by Golden Energy and Resources Pte Ltd (GEAR) and M Resources Pty Ltd (M Resources). The consideration for the Transaction includes an upfront cash payment of US$1.05 billion, a deferred cash consideration of US$250 million payable in 2030, and contingent price-linked cash consideration of up to US$350 million. The total consideration represents a multiple of approximately 7.2 times the average annual free cash flow for Illawarra Metallurgical Coal.

Strategic Implications

The sale is consistent with South32’s strategy to reshape its portfolio and focus on commodities crucial for a low-carbon future. By divesting Illawarra Metallurgical Coal, South32 aims to strengthen its balance sheet and unlock capital for investment in high-quality development projects in copper and zinc. This move also simplifies the company’s business operations and reduces its capital intensity.

Buyer Profile

GEAR and M Resources, the buyers of Illawarra Metallurgical Coal, are established participants in the Australian metallurgical coal industry. Both entities have a strong commitment to environmental and safety standards, positioning them well to continue the contribution of Illawarra Metallurgical Coal to the local steel industry.

Transaction Completion and Impact

The Transaction is expected to be completed in the first half of the financial year 2025, subject to regulatory approvals and other customary conditions. Upon completion, the proceeds from the Transaction will be allocated in accordance with South32’s capital management framework, supporting investment in the business and delivering returns to shareholders efficiently.

Tax and Accounting Treatment

Illawarra Metallurgical Coal will be reported as a discontinued operation until completion of the Transaction. The company expects a non-cash impairment reversal of up to ~US$520 million in its FY24 financial statements, with no anticipated cash tax liability upon completion of the Transaction.