November 16, 2016 / 5:01 AM / 2 years ago

UPDATE 2-Wesfarmers seeks coal exit in sellers' market as prices soar

* Comes as coal prices soar, asset values rise (Adds quotes, broadens context)

By James Regan

SYDNEY, Nov 16 (Reuters) - Australian conglomerate Wesfarmers Ltd is weighing a sale of its coal mines following an unexpected price surge that is turning coal into one of this year’s hottest commodities.

“Wesfarmers is continuing to consider a broad range of options, from operational to divestment initiatives, including recently seeking expressions of interest from external parties who may want to acquire the coal assets,” it said in a statement.

Wesfarmers hasn’t put a price tag on the mines, but the division, producing steel-making grade coking coal and thermal coal for power generation, could fetch upwards of A$2 billion ($1.5 billion), according to sources in the sector.

Coal mines, which sold for as little as $1 dollar in Australia recently and scorned by environmentalists as blights on the landscape destined to be replaced by windfarms and solar panels, have returned with a roar.

“Coal mines are very much in demand again,” said an attorney who has represented both buyers and sellers in mergers and acquisitions in mining. “If ever there was a time to sell a coal mine, now is it.”

Wesfarmers runs one of Australia’s largest independent collieries, yielding annually 8.5 million tonnes of coking coal and 3 million tonnes of thermal coal.

Driven by cuts in Chinese coal output and strong demand across Asia, Australian coal prices have more than doubled, making coal one 2016’s fastest appreciating commodities.

“We would always be interested in looking at high quality coking coal,” Jason Chang, chief executive of private equity group EMR Capital told Reuters. His firm has raised $860 million to invest in mining, with Chang saying it would interested in looking at Wesfarmers’ coking coal assets.


Chang said higher coal prices were leading sellers to hold back on sales, but EMR Capital had a 10- to 12-year timeframe for its fund and would be patient on acquiring assets.

A deal for Anglo American to sell its Australian coal assets to investors led by private equity group Apollo Global Management was called off last week, with a source saying Anglo American’s board was opposed to a sale.

Anglo American never confirmed the deal was off, but other sources active in Australian mining mergers and acquisitions said BHP Billiton and Mitsubishi Corp have stepped in jointly as interested parties.

“It shouldn’t come as a surprise BHP and Mitsubishi are back in now as serious buyers now that Apollo has stepped away,” said a private equity fund manager specialising in Australian coal assets and familiar with the sale process.

BHP and Anglo American declined comment.

BHP and Mitsubishi already jointly operate the world’s biggest coking coal exporting business from mines close to Anglo American’s assets.

Coal mines were among the first to go on the block when Australia’s mining boom went bust a half-decade ago.

And 16 months ago the fire sale was still in full swing, with Stanmore Coal paying Vale and Sumitomo Corp just A$1 for a coking coal mine. Since restarting the mine in May, though, Stanmore’s stock has more than doubled.

Wesfarmers, more known for its supermarket, hardware and retailing businesses, has long expressed interest in exiting the mining business.

$1 = 1.3261 Australian dollars Reporting by James Regan; Additional reporting by Sonali Paul in MELBOURNE; Editing by Michael Perry and Tom Hogue

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