South32 looking for more coking coal mines

Worsley Alumina business in Western Australia. (Image courtesy of South32)

South32 (ASX, LON, JSE:S32), the Australian miner spun off from BHP Billiton last year, it’s interested in acquiring more coal mines producing the steelmaking kind, following its recent acquisition of Peabody Energy’s Metropolitan coal mine.

The company, however, has decided to stay away from thermal coal assets due mainly to uncertainties over demand linked to climate concerns, the company said.

While South32 believes the rally in coal prices may stay until the end of the year, it expects the market to weaken in 2017 for both types, thermal and metallurgical.

Encouraged by an ongoing rally in coal prices, South32 announced earlier this month it would pay $200 million for Peabody’s Metropolitan metallurgical coal mine in Australia. Such deal, the miner’s first acquisitive move since it separated from BHP, included a 17% interest in the Port Kembla Coal Terminal, south of Sydney.

Prices for coking coal has risen by more than 300% this year because of Chinese demand and output reductions. Thermal coal, used for energy generation, has also surged considerably — about 100%.

While chief executive Graham Kerr believes prices may stay high until the end of the year, he warned his company expects the market to weaken in 2017 for both coal types.

“Consistent with our strategy, we will continue to identify and evaluate new and exciting opportunities outside our current portfolio, where we see value. But we won’t compromise our balance sheet,” Kerr said in a statement.

He also highlighted the progress the company has made this year, including annual production records at Australia Manganese, Worsley Alumina, Brazil Alumina, Mozal Aluminum and Cannington.

South32 has been the sixth-best stock in the ASX 200 index this year as its shares surged from a low of 89 cents in January to A$2.85 Friday. The company reduced its net debt by US$714 million during the 2016 financial year, leaving the group with US$312m in cash at the end of June.

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