Whitehaven Coal Signs US$1.08 Billion Mine Stake Sale With Japanese Steelmakers — 2nd Update

By Rhiannon Hoyle

Whitehaven Coal said it has signed deals to sell a 30% share in a newly acquired Australian coal mine for US$1.08 billion to a pair of Japanese steelmakers eager to shore up future supplies of the commodity needed to fuel their mills.

The Australian coal producer on Thursday said Nippon Steel and JFE Steel, both long-term customers of the Blackwater metallurgical coal mine, will buy a 20% and 10% stake, respectively, in that operation, in deals that Whitehaven said will strengthen its balance sheet.

Whitehaven announced the agreements as it recorded a sharp fall in annual profit in large part because of a halving in coal prices.

The company said its net profit fell by 87% to 355 million Australian dollars, equivalent to US$239 million, in the year through June, reflecting a pullback in coal prices from record-high levels and higher production costs that more than offset a jump in output.

Whitehaven has sought to expand its business by betting on metallurgical coal, which is used in steelmaking and which the company expects to be in high demand for urbanization in developing economies and in the shift to clean energy. While steelmakers are working on technologies to make their mills less polluting, global steel production is expected to be dominated by relatively new coal-fired blast furnaces in Asia for decades to come.

Whitehaven bought Blackwater and another mine, Daunia, from BHP Group and Japan's Mitsubishi in April in a deal worth up to US$4.1 billion. It said it intended to find a strategic partner in the steel industry for a stake in the massive Blackwater operation, one of the largest coal mines in Australia.

As part of the latest deals, Whitehaven has entered supply agreements with Nippon Steel and JFE Steel, with whom it will own the Blackwater mine via a joint venture that Whitehaven will manage. The supply agreements take into account each steelmaker's stake and historical demand for Blackwater coal, and include market-based pricing, the miner said.

The steelmakers said they are seeking to ensure they have a steady future supply of steelmaking coal, also known as coking coal.

"Having a secure supply of high quality coking coal supports us to stabilize profits and build a more resilient Nippon Steel," said Takashi Hirose, Representative Director and Executive Vice President at Nippon Steel, Japan's largest steelmaker and one of the world's top steel producers.

Nippon Steel and JFE Steel, the second-largest integrated steelmaker in Japan, both have interests in a number of coal-mining operations in Australia.

Whitehaven Chief Executive Paul Flynn said customers are anxious about the continuity of coal supply in the long term.

"With the formation of this joint venture, with Nippon Steel and JFE, they are looking to move past the traditional evergreen annual contract for volumes, and move to a more secure, longer-term footing of life-of-mine offtake," Flynn told reporters on a call. "That's the big change we see in the market place."

Officials in Australia's Queensland state, which is the world's largest exporter of coal used to make steel and where the Blackwater mine is located, in 2022 sharply raised the level of royalties miners must pay the government for the coal they dig up. Miners say it has slowed investment in new pits.

Nippon Steel is "very worried about it and the impact that dramatic royalty changes can have on the investment case for new supply into the market," said Flynn.

Flynn said cash from the sale will strengthen the balance sheet of Whitehaven, which reported net debt of nearly A$1.3 billion at June 30 compared to its net cash position of more than A$2.6 billion a year earlier, before the mine acquisitions. Whitehaven expects to complete the deals to sell the stakes in the first quarter of calendar year 2025.

The value of the deals was above market expectations, Citi analyst Paul McTaggart said in a note. Whitehaven's stock was up 5.6% by early afternoon in Sydney.

The purchase of the Blackwater and Daunia mines boosted Whitehaven's production and sales for its fiscal year through June. The miner last month reported saleable coal production of 20.7 million metric tons, which compared to 15.7 million tons during the 12 months prior.

Its earnings were eroded by lower coal prices and higher production costs, though.

Coal prices surged to an all-time high in the year-prior period, fanned by concerns about energy security following Russia's invasion of Ukraine. Prices for the commodity have since eased as markets adjusted.

Whitehaven reported an average thermal-coal price of US$140 a ton for fiscal 2024, down from US$305 a ton in the year-prior period.

The company said its costs increased because of lower volumes from its Narrabri operation and inflation pressures that pushed up the price of labor, electricity and equipment parts.

Directors declared a final dividend of 13 Australian cents a share, taking its total payout to 20 Australian cents for fiscal 2024. A year ago, it paid a final dividend of 42 Australian cents, for a total fiscal 2023 payout of 74 Australian cents.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

August 22, 2024 00:02 ET (04:02 GMT)

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