Signature Sponsor
Jefferies Says Anglo American Coal Fire Likely to Affect Met Coal Sale



July 1, 2024 -  A fire at Anglo American (JO:AGLJ)'s Grosvenor metallurgical coal mine in Australia is likely to negatively affect its Australian met coal business, broker Jefferies said in a note on Monday.

Anglo American said on Sunday it was battling an underground fire at the coal mine in Australia's Queensland state after a blaze ignited there on Saturday. There were no injuries, but it said it expects the mine to remain shut for several months.

Key Quote

"On our estimates, Grosvenor accounts for ~30% of the $4.5bn value we attribute to Anglo's met coal business. This fire could significantly damage the timing and valuation of a potential sale of Moranbah North and Grosvenor."

Why It's Important

Anglo American rebuffed a $49 billion offer from BHP Group (NYSE:BHP) in May in favour of a strategy laid out by CEO Duncan Wanblad that included a process to sell its coal, nickel and diamond assets.

At the time, investors said Wanblad would have to meet his targets promptly, or the company would be vulnerable to another bid by "all the usual suspects".

The fire is the second at the mine since 2020, when a similar outbreak injured five workers, and Anglo said then it would work to ensure such an incident never happened again, Jefferies noted.

By the Numbers

Anglo American's steelmaking coal business expects to produce around 8 million tonnes in the first half of 2024, of which Grosvenor will contribute around 2.3 million tonnes.

Anglo had guided to 15 to 17 million tonnes for the year, of which Grosvenor was expected to contribute around 3.5 million tonnes due to mine planning.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads.

Jefferies assumes the mine will be offline until mid-2025 and sees the closure tightening the 90 million tonne per year seaborn met coal market.

Market Reaction

Anglo American shares closed at 2502 pence on Friday.

The Response

Anglo said in a statement to Reuters that it still intends to divest its steelmaking coal business and that it had received strong interest from a wide range of potential buyers.

? "The incident underground at Grosvenor is serious and it will take some time to assess the impact on the mine and implement remedial action," it said, adding it was focused on ensuring the safety and wellbeing of its workforce and local communities. 

"We will assess the timing of the divestment process in the coming weeks but we are continuing the preparation work in the meantime."