Australian coal miners recapitalise, eye BHP assets and other M&A

New Hope Corporation, a major thermal coal producer, raised about A$200-million ($152-million) late last month whose use it said "may include further growth expansion and opportunistic M&A activity."

And Stanmore Resources said last week its majority owner, Singapore-listed Golden Energy and Resources (GEAR), will increase a loan facility to $70 million, partly to help the Australian coal miner advance its Isaac Plains project.

New Hope and Golden Energy are seen by analysts and bankers as potential suitors for some of BHP Group's Australian coal assets, including the Mt. Arthur thermal coal mine and its stake in a steelmaking coal project with Japan's Mitsui . Final bids are due for the assets in coming weeks, which BHP could sell separately or together.

BHP's divestment process is expected to be a good barometer of demand for so-called polluting assets such as coal amid rising pressure from financiers and environmental activists to switch to cleaner energy sources.

But with thermal coal prices rising to record highs and steelmaking coal increasing to two-year peaks, the financing pressure on Australian miners for projects has relaxed a little.

The price rally will allow New Hope to pay down its $440-million debt and restore its balance sheet faster than expected to a net cash position, possibly as soon as this year, analysts said. New Hope made a loss of A$111.6-million in 2020.

"We expect NHC would likely be looking at BHP's assets which the latter is looking to exit including the nearby Mt. Arthur thermal coal mine in the Hunter (Valley)," Citi said in a research note last month.

New Hope's organic growth options have been constrained by fierce local opposition on environmental grounds to its New Acland coal mine expansion, which is awaiting a November court hearing.

Its strong operational skills, low ash Bengalla coal that could improve economics for Mt. Arthur through blending, and improved financial standing would make it a good fit for the BHP asset, bankers and analysts told Reuters.

New Hope and BHP declined to comment.

New Hope has, however, said that any new M&A opportunities must be at the lower end of the cost curve, value-creating from day one and have long term approvals in place. Mt. Arthur's operating licence is set to expire in 2026 although BHP has applied to extend it.

Analysts and bankers value Mt. Arthur anywhere from a negative level to as much as $400-million, due to its $1-billion cost to restore the mine's environment. RBC values the assets jointly at $2.5-billion.

Another prospective bidder for the asset is a coalition of activist investor Elliott and coal miner Peabody, a source familiar with the matter told Reuters.

Elliott did not respond to a Reuters request for comment. Peabody declined to comment.

Golden Energy is a likely bidder for the steelmaking coal asset, a source familiar with the matter said, as it opts to diversify away from its thermal coal mines in Indonesia into metallurgical coal. Golden Energy did not respond to a request for comment.

The Australian newspaper previously reported that Indonesia's BUMA was also in the running. BUMA did not respond to a request for comment.