South32 to acquire stake in Eagle Downs coal project in QLD

South32 plans to acquire a 50 per cent interest in the Eagle Downs metallurgical coal project in Queensland’s Bowen Basin from China BaoWu Steel Group (BaoWu).

The miner will also become operator of the mine under the agreement, with the remaining 50 per cent stake to continue to be held by Aquila Resources, a BaoWu subsidiary.

South32 will pay $US133 million ($177 million) to acquire Eagle Downs, including an upfront $US106 million payment and a deferred $US27 million payment three years after completion of the transaction.

The deal will also involve a coal-price linked production royalty capped at $US80 million.

South32 expects to fund the acquisition from its cash reserves, with the deal expected to close in the first half of the 2019 financial year.

Chief executive Graham Kerr said South32 had 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,” Kerr said.

“This acquisition embeds an attractive development option within our growing operating footprint and puts our strong balance sheet to work in a disciplined manner.

“This high-quality metallurgical coal project benefits from prior investment which has the potential to support its accelerated development and deliver significant value to both South32 and Aquila.”

Eagle Downs, a fully permitted metallurgical coal development project, is approximately 25km south-east of Moranbah and adjacent to BHP Billiton Mitsubishi Alliance’s Peak Downs mine.

The project was placed under care and maintenance in late 2015, having benefitted from initial investment that delivered site infrastructure, including water supply and high voltage systems, office buildings and water and sediment dams. Dual 2km drifts are also approximately 40 per cent complete.

South32 is proposing to launch a final feasibility at Eagle Downs, which will seek to optimise the mine’s design and development, once it has completed the acquisition.

According to Aquila, Eagle Downs has a coal resource of 1122Mt of which 67 per cent is measured, 12 per cent is indicated and 21 per cent is inferred, in accordance with the JORC code.

Aquila believes the mine has the potential to export 4.5Mt/y of coal from one longwall over the first 10 years of production.