South32 to Buy Half of Eagle Downs Met Coal Project

Australian mining company South32 (ASX:S32) is lined up to acquire a 50-percent stake in the Eagle Downs metallurgical coal project from China BaoWu Steel Group.

The acquisition comes with a US$106-million price tag, along with a deferred payment of US$27 million three years after the purchase is complete. The asset is located in Queensland’s Bowen Basin, and Aquila Resources (TSX:AQA), a subsidiary of BaoWu, will continue to hold the other 50 percent.

A coal price-linked production royalty also will be payable and capped at US$80 million. South32 predicts that the acquisition will close in the first half of 2019’s financial year, with cash reserves fueling the deal.

“We have a long-standing relationship with BaoWu as a supplier of manganese ore and alloy. We are very pleased to be able to further strengthen this relationship by assuming operatorship of Eagle Downs,” South32 CEO Graham Kerr said in a statement on Tuesday (May 29).

The site, located 25 kilometers southeast of the town of Moranbah, is directly adjacent to the Peak Downs mine, run by the BHP Mitsubishi Alliance.

Eagle Downs has been under maintenance since 2015, with dual 2-kilometer drifts now being about 40 percent complete. Prior work at the site by Aquila shows a coal resource of 1,122 million tonnes, 67 percent of which is measured, while 12 percent is indicated and 21 percent is inferred.

Aquila predicts the site could export 4.5 million tonnes of coal per year from one longwall over the first 10 years of production.

South32 has five other projects in Australia, among additional assets in Africa and South America. The acquisition of Eagle Downs marks South32’s second project in Queensland, accompanying the company’s Cannington silver and lead mine, which produces around 3 million tonnes each year.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.