South32’s disposal of the Illawarra coal mine in Australia for $2.5 billion (R46bn) is now unconditional following the fulfilment of all conditions precedent to the transaction, the company said yesterday.
The diversified mining and metals group expects the deal to be completed at the beginning of September.
The Illawarra coal mine is being disposed to an entity owned by Golden Energy and Resources (GEAR) and M Resources which are established participants in the Australian metallurgical coal industry.
For South32, the disposal of Illawarra “will significantly reduce the company’s capital intensity, with Illawarra Metallurgical Coal currently comprising 35%,” of its capital expenditure, it has previously said.
The company said yesterday that “all conditions precedent to the sale of Illawarra Metallurgical Coal” had now been satisfied.
“Accordingly, the transaction is unconditional and is expected to complete on or around 2 September 2024,” it said.
Earlier this month, South32 received an approval for the disposal from the Australian Foreign Investment Review Board.
South32 CEO, Graham Kerr, said the disposal of Illawarra Metallurgical Coal marked a key development for the company in its quest to focus on metals crucial for a low-carbon world.
“The disposal is a significant milestone in the transformation of our portfolio towards commodities critical to a low-carbon future. The transaction will simplify our business, strengthen our balance sheet and reduce our capital intensity, unlocking capital to invest in our high-quality development projects in copper and zinc,” said Kerr.
He explained that the company’s strategy will remain focused on a “disciplined approach to capital allocation” and investment. South32 is already investing $15 million (R276m) into new mining areas for its South African manganese operations.
Kerr said South32 remains “focused on delivering our development projects and advancing our portfolio of earlier stage options to further increase our exposure to commodities critical to a low-carbon” future.
As the new owners of the Illawarra mine, Golden Energy and Resources and M Resources will assume economic and operating control on completion of the deal. This includes taking over all current and future liabilities of the mine.
“On completion, we will receive the upfront cash consideration of $1bn (R18.4bn), less the already paid deposit of $40m (R736m). The deferred cash consideration of $250m (R4, 6bn), payable in 2030, and the contingent price-linked cash consideration of up to $350m (R6,4bn), will be recognised in our financial statements as a non-current other receivable and a non-current other financial asset, respectively.”
South32 said the upfront cash consideration will be allocated in accordance with the company’s capital management framework and commitment to an investment grade credit rating.
Its capital management framework was designed to support investment in its operations and to deliver returns to shareholders.
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