Canada-bound Anglo American is gearing up to go to war with American coal miner Peabody Energy in a high-stakes battle over the failed $3.8bn steelmaking coal deal, in a dispute that will see lawyers on both sides getting big pay cheques.
Peabody pulled out of a deal to buy Anglo’s Australian steelmaking coal assets in August, dealing a blow to Anglo CEO Duncan Wanblad’s plans to simplify the group’s asset base to copper, iron ore and crop nutrients.
Peabody terminated the deal after a fire at the Moranbah North mine that halted production — an episode the company felt triggered a material adverse change.
A substantial share of the acquisition value, first announced a year ago, was associated with Moranbah North.
The US mining house, which already owns about five mines Down Under, said on Friday that Anglo followed through on its undertaking to institute legal proceedings over the termination, with its position that the fire at Moranbah did not constitute a material adverse change.
“Peabody Energy confirmed today that Anglo American Plc has initiated arbitration proceedings in response to the termination of purchase agreements relating to Anglo’s steelmaking coal assets,” it said in a regulatory filing.
“Peabody remains confident that a material adverse change occurred, entitling Peabody to terminate the purchase agreements. After termination, Anglo has returned $29m of the $75m deposit due to Peabody, and Peabody has demanded the outstanding portion to be returned without further delay.”
Signs of collapse emerged months ago
The writing for the deal’s collapse was on the wall as early as May when Peabody said funding for the deal had been put on hold due to the uncertainty caused by the fire, with production at Moranbah yet to resume.
This was followed by Peabody saying that because of the fire it was no longer willing to pay a premium price for the assets, suggesting the $3.8bn agreed on in November was now substantially lower.
Anglo will hope to resolve the Peabody dispute as soon as possible as it advances its mega merger with Canadian copper miner Teck Resources in one of the largest mining deals over the past decade.
The deal will see the merged group, in which Anglo will own 62.7%, headquartered in Vancouver and named Anglo Teck. Wanblad will retain his role, while Teck boss Jonathan Price becomes deputy CEO when the deal is concluded, which might take more than a year.
Steelmaking assets excluded from merger
The $60bn deal does not contemplate steelmaking assets in the combined portfolio, after Teck sold similar assets to Glencore for about $7bn a year ago.
Material adverse changes derailing deals and leading to protracted legal disputes, while not common, are nothing new in mergers & acquisitions, particularly in the mining sector.
Sibanye-Stillwater was last year ordered to compensate UK private equity firm Appian Capital Advisory for walking from a deal to buy its shares in Atlantic Nickel and Mineração Vale Verde, the respective owners of the Santa Rita nickel and Serrote copper mines in Brazil for $1.2bn.
Sibanye took the decision in 2022, citing a “geotechnical incident” at Santa Rita, which it deemed significant enough to undermine the commercial merits of the deal and justify terminating the agreement.
While the UK court found Sibanye wanting in its reasons for terminating the share purchase agreement as a result of the geotechnical event, it held that the miner had not done so wilfully. A hearing to deal with the quantum of the damages that Sibanye must pay to Appian is set for next month.
The outcome of the Anglo dispute is critical because if it goes in Peabody’s favour, it will have an impact on the valuation of the assets and how much other suitors will be willing to pay.
Anglo has yet to sell its diamonds outfit, De Beers, as part of its asset disposal process, which it sped up last year after BHP launched two unsuccessful bids to buy the group.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.