South32, the mining company spun out of BHP Billiton last year, on Thursday declared it was on the hunt for more coal deals following the rebound in commodity prices this year.
The Perth-based group is interested in coking coal, which is used in steelmaking.
South32 this month agreed to pay at least $200m for the Australian assets of Peabody Energy, the US coal mining company, and chief executive Graham Kerr said: “We’ll 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.”
Coking coal prices have increased more than 300 per cent this year after China cut production and began importing more from overseas.
Mr Kerr said coking coal “is attractive long-term not only because it will still be used in China but because of a lack of resources in India”.
South32’s name is derived from the latitude linking its main operations in Australia and South Africa.
Its main assets are mines and smelters focused on coal, manganese, aluminium and nickel, which has left BHP to concentrate on copper, iron ore and energy resources including coal, oil and gas.
After a tough start as an independent company last year amid falling commodity prices, shares in South32 have increased 168 per cent this year.
One reason is that, unlike many other mining companies that are struggling to reduce their debt loads, South32 has net cash of $312m.
But its assets have a shorter life than those retained by BHP, which is putting pressure on South32 to pursue acquisitions.
Mr Kerr said that while there may be opportunities in coking coal, investor concerns around climate change meant it was unlikely to expand in the thermal variant, which is used in power stations.
Peabody filed for bankruptcy protection in the US in April, blaming “unprecedented” factors affecting the coal mining industry, including falling prices, weakness in the Chinese economy, and problems in its domestic market.
Peabody was also struggling with a large debt load and falling gas prices that have hit the US coal sector hard.
But amid the commodity price rebound, mining companies are now looking to hold on to coking coal assets.
Anglo-American recently ended talks to sell two Australian coking coal mines for about $2bn to a consortium led by private equity firm Apollo Global Management.
Mr Kerr said he did not expect coking coal prices to stay where they are “forever”, and predicted some weakness next year.
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