BlueScope could step in on $1 billion sale of Illawarra mines

South32 announced plans to sell Illawarra Metallurgical Coal (IMC) - which includes Appin and Dendrobium mines and a 16.67 per cent stake in the Port Kembla Coal Terminal - to a group called GEAR M Illawarra Met Coal for $US1.65 billion.

The group is jointly owned by Singapore's Golden Energy and Resources and Queensland-based M Resources.

South32 CEO Graham Kerr said the sale was part of the company's change of direction.

"This transaction will realise significant value for our shareholders and is consistent with our strategy to reshape our portfolio toward commodities critical in the transition to a low-carbon future," Mr Kerr said.

"It will streamline our portfolio, strengthen our balance sheet and unlock capital to invest in our high-quality development projects in copper and zinc."

The IMC business mines coal for steelmaking, and supplies the majority of coal used in the Port Kembla steelworks.

"BlueScope has a longstanding supply agreement with IMC out to 2032 for supply of a blend of metallurgical coal from its Appin and Dendrobium mines located in the Illawarra," a BlueScope spokesman said.

Both BlueScope and South32 were spun out of BHP in 2002, with the 30-year supply deal part of that process.

Also tied up in that 30-year deal is that BlueScope has to approve the sale of the IMC operations; it can refuse to waive its rights but would then have to purchase the business at the same price.

"BlueScope has ongoing rights under the long-term supply contract," the BlueScope spokesman said, "including pre-emption acquisition rights in favour of BlueScope, and the company will consider its position."

In an investor briefing, Mr Kerr said BlueScope would have to make the decision on whether to waive its rights before the deal was completed. He also said if BlueScope did exercise that right GEAR M could not come back and improve its offer.

Mr Kerr also felt there would still be demand for IMC coal.

"As a key ingredient in the production of steel we've always believed there will be a strong demand for premium quality metallurgical coal that Illawarra Coal produces until low carbon steel becomes economically viable on a commercial scale," he said.

The sale will also need to be approved by the Foreign Investments Review Board and also meet other regulatory requirements.

The new buyer has already paid a $40 million deposit, which will be refunded if any of these conditions are not met.

The Mining and Energy Union felt the possible sale of IMC could end up being good news for Illawarra workers.

"People will be feeling uncertain today about what the sale means for them," said MEU secretary Andy Davey.

"We have just received this news and will be working through the issues and seeking to meet with the buyers.

"We are optimistic that this can be a positive outcome for Illawarra coal mineworkers."

Mr Davey said this was because of South32's "toxic and divisive employment model" of outsourcing to labour hire companies.

It's good riddance as far as we are concerned," he said.

There were around 1000 directly employed workers at the IMC sites covered by enterprise agreements and those conditions would automatically transfer over in any sale.

Mr Davey said the union would also push for secure jobs for the at least 1500 labour hire workers and contractors at Appin and Dendrobium.

"These mines are a major employer in our region and set the standard for employment conditions," he said.

"We will approach this change of owner as an opportunity for more direct employment for Illawarra coal mineworkers.

"Along with new federal laws giving more rights to labour hire workers, this is a good opportunity to reset working conditions and improve job security in our local coal industry."