Monster of Coal: Whitehaven surges in vote of support for $6.4bn BHP mine buy … and a lithium player Develops
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Whitehaven Coal (ASX:WHC) has received a massive vote of support for its controversial purchase of BHP’s (ASX:BHP) Daunia and Blackwater coking coal mines in a potential $6.4 billion deal that would see it become the largest met coal exposure on the ASX.
The deal will completely transform the nature of Whitehaven’s business. Comprised of an initial outlay of US$2.1 billion, followed by deferred payments of US$1.1 billion and contingent payments linked to the coal price of up to US$900m, it will turn the primarily thermal coal producing Whitehaven into a major met coal player.
70% of its output will now be supplied to the met coal industry, opening the doors for Whitehaven to emerging economies in India and Southeast Asia on top of its traditional energy markets in Japan, South Korea and Taiwan.
Both located in Queensland, Daunia is expected to produce 4.9Mtpa over the next five years, while Blackwater will deliver 12.4Mtpa over the next five years, roughly doubling the Whitehaven’s ROM coal production based on its FY23 numbers.
BHP and its BMA JV partner Mitsubishi were keen to hive off the mines because their coal is of a lower quality than the premium hard coking coal supplied by their flagship mines like Saraji and Peak Downs. That is despite the mining giant’s longheld conviction demand for coking coal would stay strong for decades because there is yet to be a scale solution to drop coal from the steel production process.
Its latest quarterly report yesterday revealed a growing gulf between prices received for BMA’s hard coking coal and weak coking coal.
Hard coking coal prices realised by BHP dropped 12% from US$276.22/t to US$242.52/t, while weak coking coal prices fell a hefty 24% from US$250.38/t to US$190.74/t (still highly profitable against unit costs of US$95-105/t).
But investors have cheered Whitehaven’s purchase, lifting its shares by 11.5% after exiting a trading halt to announce the transaction yesterday.
Whitehaven has been in not quite hand-to-hand combat in a coal war on two fronts since it became apparent it was going to be the preferred bidder for the BHP assets.
On one side is near 5% shareholder London hedge fund Bell Rock Capital, which thinks the deal will kill shareholder returns after WHC suspended a generous buyback scheme that returned almost $950 million to shareholders last year.
It wants other shareholders to use the miner’s AGM on October 26 to vote down a remuneration scheme supported by investors last year it says will incentivise management to chase growth over shareholder returns.
Bell Rock also wants investors to vote a number of directors off the Whitehaven board, though Whitehaven and MD Paul Flynn will gleefully point to the reaction today as evidence most shareholders are on board with its growth plans and strategic direction.
At the same time Whitehaven and BHP are facing anger from ‘big A’ Activist shareholder groups, who say the sale of the mines to a coal-focused miner will keep the mines operating for longer, frustrating emissions reduction initiatives.
“Whitehaven has splurged billions on two second rate coal mines ditched by BHP, in complete disregard for shareholders’ interests,” Market Forces CEO Will van de Pol said.
“Whitehaven is actively betting on climate collapse by pushing ahead with massive coal production growth, flying in the face of efforts to avoid catastrophic impacts of global warming.”
Those concerns are unlikely to shake Flynn, who told analysts yesterday the acquisition, to close in the June quarter next year, would put the company in a different class. He said it would open the company’s funding options for further developments in its portfolio.
Flynn argued the price paid was a discount to peers.
“We’ve paid what we believe to be a very reasonable price off conservative pricing, we haven’t stuck our necks out on price at all,” he said.
“If you look at the overarching price we’ve paid, we’ve paid well under the comps for our comparative companies or peers, being anyone in this space who’s 50% plus revenue from a met coal perspective.
“We’re well inside that, 20% discount to the comps we’ve lined up here in that presentation.”
He said it was a compelling deal even at “conservative” broker consensus pricing, rating it 70% accretive on an earnings per share and 160% on currently strong spot prices.
While much of the market’s attention was turned by Whitehaven’s big mine buy and Codelco’s $385 million offer for Chilean lithium tiddler Lithium Power International (ASX:LPI), another deal quietly passed its biggest test.
Develop Global (ASX:DVP) received the major approval needed to secure its takeover of Essential Metals (ASX:ESS) nabbing influential boss Bill Beament ownership of one of less than 15 JORC lithium resources in WA’s dominant hard rock lithium space.
Containing 11.2Mt at 1.16% Li2O, the Pioneer Dome project near Norseman — previously mined for caesium — will enter the portfolio of Beament’s Develop alongside its Sulphur Springs and Woodlawn zinc-copper projects and the mining services cum green metals play’s contract at the Bellevue Gold (ASX:BGL) mine after it was voted up in a scheme meeting yesterday.
Rated not fair by reasonable and in the best interests of shareholders by independent expert BDO, 93% of votes cast were in favour of the deal, including 78% of Essential shareholders present at the meeting in Perth yesterday.
Develop was backed in by Chris Ellison’s Mineral Resources (ASX:MIN), one of its largest shareholders, which picked up a blocking stake to kill an earlier attempt to buy Essential by TLEA JV partners IGO (ASX:IGO) and Tianqi, who together own 51% of the world class Greenbushes mine and a lithium hydroxide plant in Kwinana.
The mine carries a $293 million bill as a standalone development. But it could well be developed cheaper if it can be processed through MinRes’ nearby Mt Marion plant and the Bald Hill plant it is picking up from the hands of th administrators of Alita Resources.
MinRes has a dominant influence in the Goldfields region’s lithium juniors, with major stakes not just in Develop but also Mt Ida lithium deposit owner Delta Lithium (ASX:DLI), where Ellison is now the non-executive chairman, and Global Lithium (ASX:GL1), owner of the 36Mt Manna deposit east of Kalgoorlie.