Wrap Text
Agrees to acquire Peabody’s Metropolitan Colliery
South32 Limited
(Incorporated in Australia under the Corporations Act 2001 (Cth))
(ACN 093 732 597)
ASX / LSE / JSE Share Code: S32
ISIN: AU000000S320
south32.net
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.
Registered Office: Level 35, 108 St Georges Terrace, Perth Western Australia 6000, Australia
ABN 84 093 732 597 Registered in Australia
FURTHER INFORMATION
INVESTOR RELATIONS
Alex Volante Rob Ward
T +61 8 9324 9029 T +61 8 9324 9340
M +61 403 328 408 M +61 431 596 831
E Alex.Volante@south32.net E Robert.Ward@south32.net
MEDIA RELATIONS
Diana Wearing Smith James Clothier
T +61 8 9324 9198 T +61 8 9324 9697
M +61 436 482 290 M +61 413 319 031
E Diana.Smith@south32.net E James.Clothier@south32.net
Further information on South32 can be found at www.south32.net.
JSE Sponsor: UBS South Africa (Pty) Ltd
03 November 2016
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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 - 25Mt of Proven and Probable Coal Reserves(a)(b)
Reserves - Unlocks a further 71Mt of Coal Resource at Illawarra Metallurgical Coal’s
adjacent CCL724 lease
Production and - Underground longwall operation with proven historical annual saleable
Costs 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 - Export coal is transported via Pacific National rail to PKCT and domestic
Marketing 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.
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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
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
(b)
Operating unit cost, including sustaining capital expenditure (US$/t) 82 81
Sales revenue (US$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.
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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.
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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.
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