The Australian Competition and Consumer Commission (ACCC) has raised concerns about South32’s proposed acquisition of Peabody Energy’s Metropolitan coal assets in the Illawarra region of New South Wales.
South32 agreed to buy the Metropolitan site, along with a 16.67 per cent stake in the Port Kembla coal terminal, for $US200 million ($260 million) in November last year.
The ACCC said in a statement that it was concerned that the proposed acquisition may “substantially lessen competition in the supply of coking coal to Australian steelmakers.”
South32 and Metropolitan are already two of the leading producers of coking coal in the Illawarra region and two of the largest suppliers of the product to local steelmakers.
The deal would see South32 become the Illawarra region’s only supplier of large volumes of coking coal in the medium term, following the expected closure of Glencore’s Tahmoor mine, according to the ACCC.
“Australian steelmakers currently appear to benefit from competition between South32 and Metropolitan in the form of lower prices and a wider product range. This transaction will remove that competitive rivalry,” ACCC chairman Rod Sims said.
“The ACCC recognises that coking coal is a globally traded commodity where producers typically compete on a global basis. However, local competition between South32 and Metropolitan to supply the Australian steelmakers is important in determining the prices paid by Australian steelmakers.
“The ACCC’s preliminary view is that coal suppliers outside the Illawarra region may not act as a strong competitive constraint on South32, largely due to the additional costs to the Australian steelmakers associated with transporting material volumes of coal from other regions, such as the Bowen Basin in Queensland.”
Metropolitan, which is around 30km north of Wollongong, produced two million tonnes of saleable coal in 2015. In the same year, Peabody cut production and jobs at the mine as part of a company strategy to increase productivity, improve cash flows and optimise production at its operations.
When the proposed acquisition was announced, South32 chief executive officer Graham Kerr described Metropolitan as a “natural fit” for the company’s portfolio that was consistent with a strategy of investing in high quality operations.
“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,” Kerr said.