29 February 2024
South32
Limited
(Incorporated in Australia under the Corporations Act
2001 (Cth))
(ACN 093
732 597)
ASX / LSE
/ JSE Share Code: S32; ADR: SOUHY
ISIN:
AU000000S320
south32.net
SALE OF ILLAWARRA
METALLURGICAL COAL
South32 Limited (ASX / LSE / JSE: S32; ADR: SOUHY)
(South32) has entered into a binding
agreement to sell Illawarra Metallurgical Coal[1] (Transaction) to an entity owned by Golden Energy
and Resources Pte Ltd (GEAR) and M Resources Pty Ltd (M Resources)
(the Buyer).
The consideration for the
Transaction is up to US$1,650M comprising:
·
Upfront cash consideration of
US$1,050M[2], payable at
completion;
·
Deferred cash consideration of US$250M, payable in
2030; and
·
Contingent price-linked cash consideration of up
to US$350M[3].
The total consideration represents a
multiple of approximately 7.2x average annual free cash flow for
Illawarra Metallurgical Coal[4].
The Transaction is expected to
complete in H1 FY25, subject to the satisfaction of certain
conditions including Foreign Investment Review Board approval,
customary regulatory approvals and the waiver or non-exercise of
pre-emption rights held by BlueScope Steel (AIS) Proprietary
Limited (BlueScope).
The Buyer will assume economic and operating control of Illawarra
Metallurgical Coal on completion of the Transaction, including all
current and future liabilities.
South32 Chief Executive Officer, Graham Kerr
said: "This
Transaction will realise significant value for our shareholders and
is consistent with our strategy to reshape our portfolio toward
commodities critical in the transition to a low-carbon
future.
"It will streamline our portfolio,
strengthen our balance sheet and unlock capital to invest in our
high-quality development projects in copper and zinc.
"The Transaction will also simplify
our business and reduce our capital intensity.
"Illawarra Metallurgical Coal
produces high-quality metallurgical coal, a key ingredient in the
production of steel, which will be required until low-carbon steel
becomes economically viable on a commercial scale.
"GEAR and M Resources are
established participants in the Australian metallurgical coal
industry, with a strong commitment to environmental and safety
standards, who are well positioned to continue Illawarra
Metallurgical Coal's contribution to the local steel industry and
the Illawarra and Macarthur regions.
"Our focus remains the safe and
reliable operation of Illawarra Metallurgical Coal. Over the coming
months we will work with the Buyer, our workforce, the local
community, government, customers and suppliers to support a
successful transition of ownership."
Transaction highlights
The Transaction will unlock
significant value for our shareholders and is consistent with our
strategy:
·
|
Upfront and deferred cash
consideration of US$1,300M plus exposure to metallurgical coal
price upside of up to US$350M through contingent price-linked cash
consideration;
|
·
|
Simplifies our portfolio to focus on
our operating positions and growth options in the aluminium value
chain, base metals and manganese;
|
·
|
Strengthens our balance sheet and
unlocks capital to invest in our high-quality development projects
in copper and zinc, which have the potential to underpin a ~45%
increase in our base metals production[5];
|
·
|
Reduces our operating footprint and
our functional support; and
|
·
|
Reduces our capital intensity, with
Illawarra Metallurgical Coal comprising ~35% of Group capital
expenditure[6].
|
Following completion, the proceeds
from the Transaction will be allocated in accordance with our
capital management framework and commitment to an investment grade
credit rating. Our capital management framework is designed to
support investment in our business and deliver returns to
shareholders in the most efficient and value accretive
manner.
Transaction details
The Transaction is subject to the
waiver or non-exercise of pre-emption rights held by
BlueScope, pursuant to a coal supply
agreement between Illawarra Metallurgical Coal and
BlueScope. If BlueScope exercises its
pre-emption rights, the Transaction with the Buyer will not proceed
and South32 will instead divest Illawarra Metallurgical Coal to
BlueScope on the same commercial terms and conditions as agreed
with the Buyer.
The Transaction is also subject to
no material adverse change prior to completion, pursuant to which
the Buyer may elect to terminate the Transaction if an uncured
event occurs resulting in a significant reduction in coal output,
net assets or reserves. The material adverse change definition is
also subject to a number of customary exclusions.
The Transaction includes an upfront
deposit of US$40M payable to South32. The deposit will be refunded
if the conditions precedent to the Transaction are not satisfied
(with the exception of international merger clearances).
Accounting and tax
Illawarra Metallurgical Coal will be
reported in the South32 Group's Underlying financial results as a
discontinued operation until completion of the Transaction. Upon
completion, South32's shareholding in Illawarra Metallurgical Coal,
including all associated assets and liabilities, will be
transferred to the Buyer.
As a result of the Transaction, the
Group's FY24 financial statements will include a non-cash
impairment reversal of up to ~US$520M (~US$370M post-tax). This
income will be excluded from FY24 Underlying earnings, in
accordance with the Group's accounting
policies.
We do not expect a cash tax
liability upon completion of the Transaction.
Advisers
BofA Securities is acting as a
financial adviser and Herbert Smith Freehills as legal adviser to
South32.
The
Buyer
GEAR M Illawarra Met Coal Pty Ltd
will acquire 100% of Illawarra Metallurgical Coal. Subsidiaries of
GEAR and M Resources hold shares in GEAR M Illawarra Met Coal
Pty Ltd of 70% and 30% respectively. The completion obligations of
the Buyer are guaranteed by GEAR.
GEAR is an
investment vehicle that is focused on resources in Asia Pacific.
GEAR's current major investments include a 59% interest in Stanmore
Resources Limited, an Australian domiciled and listed metallurgical
coal producer with operations in the Bowen Basin in Queensland, and
a 50% interest in Ravenswood Gold, a significant gold mining
operation located in north-east Queensland.
M Resources is an investment and
marketing company with a global market presence and offices in
Australia, Singapore, Switzerland, UK, US, India, Latin America,
and China. M Resources specialises in the trading of various
metallurgical coal products for steel manufacturing. M Resources
also has substantial investments across the mining value chain,
including Stanmore Resources, One Rail, Metarock, and
others.
About us
South32 is a globally diversified
mining and metals company. 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 produce commodities
including bauxite, alumina, aluminium, copper, silver, lead, zinc,
nickel, metallurgical coal and manganese from our operations in
Australia, Southern Africa and South America. We also have a
portfolio of high-quality development projects and options, and
exploration prospects, consistent with our strategy to reshape our
portfolio toward commodities that are critical for a low-carbon
future.
Further information on South32 can
be found at www.south32.net.
This
announcement contains inside information.
Approved
for release to the market by Graham Kerr, Chief Executive
Officer
JSE Sponsor: The Standard Bank of South Africa Limited
29 February 2024
FORWARD-LOOKING STATEMENTS
This release contains
forward-looking statements, including statements about trends in
commodity prices and currency exchange rates; demand for
commodities; production forecasts; plans, strategies and objectives
of management; capital costs and scheduling; operating costs;
anticipated productive lives of projects, mines and facilities; and
provisions and contingent liabilities. 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, the South32 Group 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. South32 cautions against reliance on any
forward-looking statements or guidance.