Still in coal and South32 is confident its $US133 million ($A176 million) pick up of a 50% stake in Queensland’s Eagle Downs coking coal project will not be dogged by the costly port and electricity contracts that have already cost the existing owners tens of millions and look set to continue plaguing the project.
The deal would involve South32 partnering with the existing 50% owner of Eagle Downs (an underground mine), Chinese steel giant Baowu (Baosteel).
But before that happens, Baowu has to buy the 50% stake in the mine held by Brazilian miner Vale and then onsell it to South32.
If the deal is done, it will provide South 32 with a metallurgical (coking) coal source well away from its problematic NSW south coast operations which are currently recovering from a closure of the Appin Colliery because of methane gas problems.
Output there is slowing ramping up after an interrupted 12 months or so of production cuts.
Construction work on Eagle Downs was shelved in 2015 on coal market uncertainty after Vale and its then joint venture partner Aquila Resources had spent $120 million on its development.
The half interest fell into the hands of Boasteel when the Chinese steel giant joined Queensland rail operator, Aurizon for a $1.4 million takeover of Aquila in 2014. Aurizon had a silly idea for a coal and iron ore export operation based in Queensland and WA respectively (The iron re was low grade, but the coking coal was high quality).
South32 chief executive Graham Kerr said Eagle Downs was an attractive development option for the company, noting the previous investment would support its accelerated construction.
As part of the deal, South32 would take over operatorship of the project and pay BaoWu a coal priced-linked production royalty capped at $US80 million.
Eagle Downs hosts a 1.1 billion tonne coal resource and had been expected to produce at a rate of 4.5 million tonnes per annum over 10 years, using a single longwall mining method.
South32 said it would begin a final feasibility study on Eagle Downs once it secured operatorship, with final plans set to include a processing plant, dedicated rail spur and train loadout facility.
South32 shares fell 1% to $3.65.