Stanmore Coal in box seat to buy BHP's $2 billion BMC mines

Stanmore Coal (ASX:SMR) in on the cusp of the transformational purchase of BHP’s BMC coal mines in a deal understood to be worth up to $2 billion.

Stockhead understands the junior coal miner has emerged as the surprise frontrunner in the hotly contested race for BHP’s 80% stake in the Poitrel and South Walker Creek mines in Queensland’s Bowen Basin, which has dragged on for over a year.

Sources have put the price at between US$1.25-1.5 billion. The deal could be formally announced early this week assuming there are no last minute hiccups.

Stanmore is primarily owned by Singapore’s Golden Energy and Resources, chaired by Indonesian billionaire Fuganto Widjaja, a member of the Widjaja family’s Sinar Mas dynasty.

GEAR last year acquired its majority stake in an off-market cash takeover at $1 per share, having fallen short with a 95c a share bid a year earlier.

Stanmore shares have tracked coal prices up over the past 12 months by 41% to $1.04.

The commodity has recovered from extreme lows in 2020 when Covid crimped industrial activity across the world to record highs this year as supply constraints and mad post-pandemic infrastructure spending bloomed overseas.

Stanmore had a market cap of $280 million as of Friday night. The deal, which would likely be funded by a mix of debt and equity, could come in at 7 times the firm’s current market valuation.

It would be an order of magnitude greater than its last acquisition, the bolt on $1.25 million purchase from Peabody of the now restarted Mavis Downs and Millennium mines adjacent to its operating Isaac Plains complex.

Stanmore, which has a production profile of around 2.4Mtpa is also looking to bring the Isaac Downs mine into production in 2022.

Poitrel and South Walker Creek have a combined production profile of ~10Mtpa. BHP is keeping hold of its BMA met coal assets, a JV with Mitsubishi which produces hard coking coal for the Asian steelmaking market. BMC, in which Japan’s Mitsui has a 20% stake, sells lower quality pulverised coal for injection and semi-soft coking coal.

Price agency Argus last assessed the low-vol PCI price at US$273.55/t, compared to US$108.05/t in April.

All quiet on the thermal front

BHP is also planning to sell its Mt Arthur thermal coal mine in New South Wales in a bid to green up its portfolio, the driving force also behind its spinout of its petroleum business into Woodside.

But the mega miner, which derives most of its profits from its extensive WA iron ore portfolio, is believed to have reconsidered its position on that asset in recent weeks given the long-term uncertainty around energy coal means record commodity prices are unlikely to be reflected in the sale price.

It is now regarded as a $275 million liability on BHP’s books.

The sale of BMC comes at the top of the market for met coal, used as a reducing agent in the steelmaking process.

While Australian coking coal is locked out of China due to an ongoing trade spat, BHP and other Australian coal producers have found willing buyers in nations like Japan, Korea, India and south east Asia where steel production is ramping up steeply.