US coal producer Peabody Energy is no longer willing to pay the full purchase price of $3.8bn (about R69bn) for Anglo American’s Australian steelmaking coal assets after a fire in March at one of the key mines in the deal grounded operations.
Peabody CEO Jim Grech on Friday piled the pressure on Anglo counterpart Duncan Wanblad, telling investors there was a “fundamental” disagreement between the parties on the material adverse change issued by Peabody after the ignition incident at Moranbah North mine.
The mooted deal, announced in November as part of Anglo’s sale of noncore assets to focus on copper, premium iron ore and its crop nutrients business, is in peril.
Grech has said there is no known credible timetable on the resumption of sustainable longwall mining at Moranbah, four months after the incident, suggesting the value of the asset has greatly diminished.
A substantial share of the acquisition value was associated with Moranbah North, Grech said.
“Four full months after the event, the exact cause of the ignition event remains unclear and by Peabody safety standards, we would not restart operations at the current longwall phase. We are highly confident that sustainable longwall mining won’t take place at Moranbah North mine until a new longwall is fully commissioned in a new section of the mine in 2026,” Grech said.
“The priorities we identified several months ago have not changed. Peabody intends to rely on its rights under the purchase agreements, which give Peabody the ability to terminate. Any revised deal will require a substantial revision of value and structure to reflect the material change in the previously agreed upon transaction, as well as safe longwall mining,” he said.
“Peabody has not reached a revised agreement with the seller and we intend to provide a further update on August 19 after the 90-day material adverse change cure period expires.”
Peabody, one of Australia’s largest coal-mining houses with about five coal assets, issued the material adverse change in May, giving Anglo 90 days to cure the issues it identified at Moranbah, or it might elect to terminate the agreement.
Last week Anglo said it still believed the incident did not constitute a material adverse change. “We continue to work constructively with Peabody towards completing the transaction and we are fulfilling our responsibilities under the sale agreements. Anglo American reserves its rights under the definitive agreements with Peabody and is confident in its legal position,” Anglo said after the release of its interim results.
The results showed a loss of $1bn, but Anglo said it expected the windfall from the sale of its steelmaking coal, nickel and demerger of Amplats to give the group’s balance sheet flexibility.
However, differences on the material adverse change indicate the matter is likely to be resolved through arbitration or the courts. Grech said,
“We have had a very candid and respectful conversation with Anglo at the highest levels. The status right now is that we have a very fundamental disagreement of the quantum of the impact [of the fire]. We are 100% certain there is a material adverse change. We have all the data and evidence to back that up.
“Anglo is saying there isn’t a material adverse change occurring. So we have a fundamental disagreement over the status of the mine,” he said.
“Impact on the value of assets include monthly lost production revenue, incurring costs of tens of millions of dollars per month, expected capital related to new longwall equipment that will be needed for sustainable long wall mining and significant probable derate of future productive capacity.”
Peabody has already put funding for the deal on hold. Material adverse changes that derail deals and lead to protracted legal disputes, while not common, are nothing new in mergers & acquisitions, particularly in the mining sector.
Sibanye-Stillwater was last year ordered to compensate UK private equity firm Appian Capital Advisory for walking away from a deal to buy its shares in Atlantic Nickel and Mineração Vale Verde, the 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 it. While a UK court found Sibanye wanting in its reasons, it held that the miner had not done so wilfully.
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