Anglo American’s multibillion-rand deal to dispose of its steelmaking coal business to US-based miner Peabody has run into turbulence with the likelihood that the former might resort to legal action should the latter not follow through on the transaction.
The mooted sale of Anglo’s steelmaking coal business to Peabody for nearly $4bn is a key cog in the Anglo-SA group’s asset simplification programme, which it hopes to complete by the end of the year.
However, the two polar opposite positions taken by Anglo and Peabody on Monday — as the parties grapple with what to do after a fire a few months ago at one of the assets up for sale — is setting the companies on a collision course.
Peabody said in a statement that it might terminate the deal, first announced in November, after the March fire at Moranbah North mine in Australia, which it described as a material adverse change (MAC) in the mooted deal.
The company’s CEO, Jim Grech, said if the MAC was not resolved to the group’s satisfaction, the company may choose to terminate the agreements, and that it had informed Anglo as such.
“While we have remained on track to complete the steelmaking coal acquisition from Anglo, the issues at Moranbah North have created significant uncertainty around the transaction,” said Grech.
“A substantial share of the acquisition value was associated with Moranbah North, yet there is no known timetable for resuming longwall production.”
Anglo countered Peabody’s statement, stating that it did not believe a MAC exists — setting the parties for a bruising confrontation should they not find each other soon.
“As a result of the progress made to date towards a safe restart and the information available, Anglo American does not believe that the stoppage at Moranbah North constitutes a material adverse change in accordance with the definitive agreements with Peabody,” it said.
“Anglo American expects to continue working with Peabody towards addressing its concerns and satisfying the remaining customary conditions in those agreements that are required for completion of the transaction.”
Peabody is one of Australia’s largest coal-mining houses, with about five coal assets Down Under.
Peabody’s statement came just days after Anglo held its AGM, where CEO Duncan Wanblad assured shareholders that the group’s plans to divest or demerge its diamond, platinum, steelmaking coal and nickel businesses were on course to be completed by the end of the year.
This is as the group, which fended off two unsolicited bids from bigger rival BHP last year, seeks to radically simplify its portfolio to focus on its copper, premium iron ore and crop nutrient assets.
It has already sold its nickel business to MMG for $500m, with the diamond business, De Beers, proving to be more difficult to sell, with a spin-off option still on the table. Anglo’s shareholders last week endorsed the move to demerge Anglo American Platinum — a process expected to be concluded next month.
MACs derailing deals and leading to protracted legal disputes, while not common, are nothing new in mergers and acquisitions, particularly in the mining sector.
Sibanye-Stillwater was last year ordered to compensate UK private equity firm Appian Capital Advisory for walking from a deal to buy its shares in Atlantic Nickel and Mineração Vale Verde, the respective owners of the Santa Rita nickel and Serrote copper mines in Brazil for $1.2bn.
Sibanye took the decision in 2022, citing a “geotechnical incident” at Santa Rita, which it deemed significant enough to undermine the commercial merits of the deal and justify terminating the agreement.
While the UK court found Sibanye wanting in its reasons for terminating the share purchase agreement as a result of the geotechnical event, it held that the miner had not done so wilfully.
A hearing to deal with the quantum of the damages Sibanye must pay to Appian is set for November.
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