South32 abandons plan to buy Peabody's Metropolitan Colliery at Helensburgh

South32 has pulled out of plans to buy Helensburgh’s Metropolitan Colliery from Peabody after failing to obtain clearance from the country’s consumer watchdog.

The company revealed on Tuesday its proposed acquisition of the colliery and associated 16.67 per cent interest in the Port Kembla Coal Terminal, worth $200 million, would not proceed. 

The Australian Competition and Consumer Commission (ACCC) was investigating South32’s planned purchase after concerns were raised about the impact of the deal on the coking coal market in the Illawarra.

The ACCC issued a statement of issues on February 23, concerned the proposed acquisition could substantially lessen competition in the supply of metallurgical coal to Australian steelmakers, including BlueScope Steel.

BlueScope had previously told the Mercury it was worried about potential price rises if South32 was allowed to buy the Metropolitan Colliery

The steelmaker has detailed its concerns to the ACCC in recent months.

Coking, or metallurgical, coal is vital for steelmaking and BlueScope buys much of its coal from South32 and Peabody’s Illawarra mines.

In a statement to the Australian Stock Exchange (ASX) on Tuesday, South32 said it “has always maintained that metallurgical coal is a globally traded commodity”.

“Given this, South32 is not prepared to make significant concessions in favour of Australian steelmakers that would likely be required to mitigate the competition concerns,” the statement said. 

“To do so would be contrary to the global market in which metallurgical coal producers compete and would adversely affect the value proposition of the acquisition.” 

South32 chief executive Graham Kerr said the company's approach to acquisitions was “always opportunistic and seen through the lens of creating value for our shareholders”.

“To proceed with the acquisition, in light of the anticipated concessions, would have compromised the merits of the transaction and this is not something we are prepared to do,” Mr Kerr said.     

South32 and Metropolitan are two of the largest producers of coking coal in the Illawarra and the two largest suppliers of coking coal to Australian steelmakers.

Peabody president and chief executive Glenn Kellow said: “We are surprised that South32 and the ACCC reached an impasse, given both the physical synergies and the global nature of the metallurgical coal markets”.

“On the other hand, we see continuing opportunities given Metropolitan's quality coking coals and port location, and our objective will be to operate the mine while maximizing returns in the international marketplace.”

The Metropolitan Colliery, which exports coal from Port Kembla, sold two million tonnes of hard coking coal in 2016.

The mine employs about 250 employees and contractors

In a statement, Peabody indicated the termination of the transaction “has no effect on operations”.

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