Monsters of Rock: South32 sees role for met coal ‘for at least 20 years’
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Diversified miner South32 (ASX:S32) continues to view steelmaking coal as a part of its long-term future as it gears its portfolio to benefit from the transition to green energy.
Echoing the position of its mother company BHP (ASX:BHP), which S32 was spun out of back in 2015, CEO Graham Kerr said met coal will be key part of the steelmaking process for at least 20 years.
Around 20% of the company’s revenue came from coking coal in the December half thanks to the record high prices currently for the tightly supplied commodity.
Around 12% came from manganese, but long term Kerr told media S32 wants metals driven by demand for solar panels, electric vehicles and wind turbines like silver, copper, aluminium and zinc to make up 80% of its revenue base.
However, he said met coal would remain part of its core commodity mix, with lower prices as supply and demand move into balance reducing its share of earnings over time.
“When it comes to metallurgical coal, metallurgical coal goes into the making of steel and while there is lots of discussion about green steel via green hydrogen, they’re a way off being commercialised,” he said.
“We have the view that’s 20 plus years. If you have a look at our partner down the road Bluescope Steel, we know they’re heading into a furnace rebuild for probably around 20 years without that technology, that’s certainly what’s happening in the industry.
“I do believe that the high quality coking coal that comes out the east coast of Australia’s quality is far better in terms of carbon impact in other parts of the world. But the world will continue to need to produce steel.”
Kerr thinks met coal prices will moderate from highs of more than US$400/t currently to US$200-300/t, but closer to US$200/t over the next 12 months.
“We don’t feel uncomfortable with that kind of … met coal percentage of our earnings revenue knowing that today it’s about US$400/t and it’s probably going to drop closer to US$200/t, sub-US$200/t, ultimately that will come down as a percentage,” he said.
“For us it’s about how do we make sure that it’s set up to actually be economic through the cycles for that price up and down.”
South32 expects to submit an EIS this quarter for the extension of its Dendrobium mine after the project was given state significance status by the NSW Government last year, with the uncertainty of an approvals process still hanging over the mine.
Strong commodity prices lifted South32 to a $1.03 billion profit today, up 1847% on the previous half year.
Along with coal, South32 is also enjoying near record prices in zinc and aluminium while one of the strongest metal performers in recent times, copper, will come into its portfolio once its purchase of 45% of the Sierra Gorda mine in Chile is finalised.
Kerr said there was a dearth of new projects to fill rising base metals demand from green energy.
“I think zinc that’s going to more than double production and copper, silver and zinc are going to play a big part in how the world decarbonises from solar panels, to electric vehicles to wind turbines,” he said.
“The other thing I don’t think people have done enough work on to be honest is the supply side in copper, in zinc, there’s been very low levels of investment over the last ten years.
“There’s not many projects that are shovel ready to go, there’s not a lot of new discoveries and all of these … are starting to see significant supply if you like fall off in terms of grade decline or tonnage etc.
“So I think medium to long term aluminium, zinc, copper, silver they’re going to be really attractive commodities to actually be in and that’s why we’ve been shifting our portfolio that way, and why roughly 80% of our future earnings on a revenue basis will be directed towards those materials.”
DEVELOP will pay $30 million for the Woodlawn zinc-copper mine in New South Wales from the administrators of Heron Resources including a 50-50 mix of cash and shares.
Another $70m in cash or DEVELOP shares will be due in a series of instalments on milestones linked to reserve announcements ($12.5m & $7.5m), an FID ($20m) and 18 months of commercial production ($30m).
The deal will be completed alongside a $50 million capital raising which will see Beament and Chris Ellison’s MinRes (ASX:MIN) tip $8m in to maintain their 16% and 15% stakes in DVP.
Despite the issues which sent the mine under in 2020, DVP says the deal is coming in at a fraction of the price of the $340m invested by Heron to re-establish the mine a few years ago.
Woodlawn produced 13.8Mt at 19.7% zinc equivalent in its initial run from 1978 to 1998 before low zinc prices and a lack of investment in exploration forced its closure.
Heron opened the mine in 2017 before a mix of ramp up issues and Covid forced its closure in 2020 and Heron’s subsequent collapse.
Woodlawn has a reserve of 12.4Mt at 7.8% ZnEq, with a high grade underground component of 3.1Mt at 13.1% ZnEq, with DVP planning to construct 1000m of underground development to drill for deep resources and reserves.
It will give DEVELOP two copper-zinc assets on opposite sides of the country, alongside the Sulphur Springs mine in WA’s Pilbara.
“Such outstanding acquisition opportunities are extremely rare,” Beament said. “Woodlawn hosts future-facing metals in a tier-one location and meets all our criteria for creating shareholder value.
“It is a substantially-developed project with extensive underground infrastructure and a new processing plant. The previous owners invested ~A$340m to re-establish the operation.
“The geology is first-class, with a VMS system which is under-explored and open in a number of areas.
“We are very confident that we will be able to grow the inventory rapidly by extending the key lenses using underground drilling.
“The potential to create value for our shareholders through inventory growth is enormous.”
Beament has an eye for a bargain and is an experienced practitioner of M&A, having transformed Northern Star from a junior gold miner to one of Australia’s largest by securing the Kanowna Belle, Kundana, Plutonic and Jundee mines in the space of a year from Barrick and Newmont in 2013 and 2014.
An example of that success is the Kundana/Kanowna Belle purchase, where NST paid Barrick $75m and sold just the Kundana assets to Evolution (ASX:EVN) last year for $400m.
Speaking of Northern Star, the now Stuart Tonkin-led firm announced it was not able to sort out a deal to buy a stake in Osisko Mining’s high grade Windfall mine in Canada.
NST had been in discussions for a 50% stake in Windfall since issuing a $169M unsecured debenture to Osisko in December.
Was this Twiggy’s nickel power play to take on BHP all along?
Billionaire Andrew Forrest has lent his support to IGO’s (ASX:IGO) $1.1 billion to purchase Western Areas (ASX:WSA) in a deal that will see IGO and Wyloo Metals study a 70-30 JV on a downstream nickel processing facility.
Twiggy’s Wyloo had spent millions upping its stake in Western Areas to almost 10% in recent weeks in what appeared to be an attempt to block IGO’s nickel bid.
As it turns out, the bigger aim of the puppetmaster of nickel’s so-called Game of Thrones could be to tackle BHP’s dominant Nickel West business head on, currently the only processor of battery grade nickel sulphate in WA.
It’s an interesting development just months after Twiggy outpointed BHP with a bid it wasn’t prepared to match for Canadian nickel explorer Noront Resources.
What remains to be seen is whether the arrangement could awaken Nickel West, which is now a bit of a sleeping bear in the drive to consolidate WA’s nickel sector.
Could it see IGO and Forrest’s downstream plans as a threat to its position as the dominant force in the WA nickel supply chain, and will that prompt BHP to come into the market for junior miners?