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Mine explosions are unfortunate under any circumstances. But for Anglo American, the timing of a fire at a coal mine in Australia is particularly unlucky. Thankfully there were no injuries. However, coal gas explosions at underground operations such as the Grosvenor mine in Queensland are not always easy to extinguish. India has a fire, at the Jharia coal fields, that has burnt for more than a century.
Anglo had high hopes of selling its steelmaking (coking) coal reasonably quickly as part of its latest restructuring plan. Inquiries had been streaming in about Grosvenor. Hard coking coal usually receives more attention from steel mill owners as it holds up better in a blast furnace. HCC also earns around a 75 per cent price premium to good quality thermal coal.
Much depends on how quickly the mine restarts. It does not help that Anglo had a previous gas ignition at Grosvenor only four years ago. Anglo could well face more regulatory scrutiny given its promises last time to ensure that this would not happen again. The miner’s roughly 2 per cent share price drop on Monday only reflects the proportion of group ebitda earnings from Grosvenor.
More to the point, this could slow down the sale of the coking coal unit just when Anglo’s chief executive Duncan Wanblad would have hoped to produce some quick wins on his restructuring plan. It’s only been about a month since Anglo shooed away BHP. Other parts of Wanblad’s plan, including separating out Anglo Platinum and diamond unit De Beers, need more time.
For now, the coking coal unit deserves a valuation around 3 times its forward ebitda, thinks Ben Davis at Liberum. Based on consensus forecasts on Visible Alpha, Anglo might then have hoped for about $4bn for Grosvenor and its other similar coal mines. Instead it will have to see what happens, unless it decides to proceed with the sale of other assets first and carves out Grosvenor for a later date.
Potential buyers such as Indonesian coal investors, Australia’s Whitehaven or even Glencore — regardless of any improved negotiating power — should understand the gas risks of underground coking coal mines. They just will not want to clean up any mess.
On the more positive side, any higher prices resulting from the loss of HCC supply in Queensland might, ironically, provide a leveller for Anglo. This news could have been worse but there is no doubt this will prove an inconvenience for backers of Wanblad’s plan.
alan.livsey@ft.com
