March 1, 2024 - Australia-listed miner South32 said Feb. 29 that it will sell its Illawarra metallurgical coal business in Australia for up to $1.65 billion, a move it said will allow to reshape its portfolio and focus on commodities critical in the transition to a low-carbon future.

The Illawarra met coal business will be sold to an entity held by Golden Energy and Resources and M Resources. Both these companies have exposure to met coal businesses, but they are not traditional miners like South32.

The sale is big news that highlights the change in the coking mining industry structure, a China-based steel market source said. "Traditional miner is becoming a combination of miner and trader," the source added.

Supply Impact

Buyers of met coal are also keeping a close eye on the development as there are expectations of spot supply impact from Illawarra, at least in the near term.

"I feel that spot trading volume from [South32] will not be large in the short term. Recent shipments from them haven't been very significant in the spot, [and the news] will probably add some pressure or uncertainties to spot supply for now. There might be more focus on the other major Australian miner but we still have to wait for things to develop," a Chinese trader said.

Another India-based steel market source said that South32's met coal is well accepted in the market, and the new owners have a good market approach, at least for the pulverized injection coal.

Meanwhile, Illawarra coal's key buyer BlueScope Steel said it will consider its current position as it has ongoing rights under its long-term supply contract with South32, including "pre-emption acquisition rights in favor of BlueScope."

BlueScope said its longstanding supply agreement with Illawarra stretches to 2032 and seeks supply of a blend of met coal from its Appin and Dendrobium mines located in the Illawarra region of Australia.

South32 in 2022 decided to abandon the expansion plan of the Dendrobium mine, considering the expected returns from the upfront capital expenditure were "not sufficient to support an investment relative to alternatives considered for the complex."

It will be interesting to see whether the new owners will revisit the plan to extend the life of the Dendrobium mine.

The Illawarra project sold 1.8 million mt of met coal in the first half of the fiscal year ending June 2024, the company said earlier in February. The project is expected to produce 4.4 million mt of met coal in fiscal 2024.

The Illawarra met coal project held 1.1 billion mt of coal reserves and resources at the end of the financial year June 2023, according to S&P Global data.

South32 Moves Focus

The Illawarra sale "will streamline our portfolio, strengthen our balance sheet and unlock capital to invest in our high-quality development projects in copper and zinc," South32 CEO Graham Kerr said.

South32 said the deal is expected to be completed in the second half of the fiscal year ending June 2025, subject to certain conditions.

South32 in a Feb. 26 presentation said it has been increasing exposure to attractive zinc markets through its Taylor zinc deposit in the US, a project which has been the only major zinc discovery in the past decade at a time of falling global zinc supply.

The Taylor zinc deposit is part of the Hermosa project, which is also home to the Clark battery-grade manganese deposit.

South32 said the company is planning a second planned-growth phase at Hermosa's Clark deposit, as it potentially looks to add exposure to the rapidly forming electric vehicle markets in North America.

Zinc's applications can be used in energy storage and other green technologies, and it is a 100% recyclable metal, according to the World Economic Forum.

Both zinc and manganese are federally listed as critical by the US and other countries because of their importance to energy transition technologies and their limited supply outside of China.

Australia is the world's largest met coal exporter, with most of its shipments going to countries such as India and Japan. Met coal is a key feedstock used to manufacture steel, a business which is highly carbon-intensive.