South32 abandons acquisition of Peabody Energy's Metropolitan coal mine in Australia

South32 Ltd, a recent spin off from mining giant BHP Billiton, yesterday said that it is abandoning its proposed $200-million acquisition of Peabody Energy's Metropolitan coal mine in Australia over regulatory issues.

Perth-based South32 said that the proposed acquisition of the Metropolitan Colliery and associated 16.67-per cent interest in the Port Kembla Coal Terminal from an Australian subsidiary of Peabody Energy will not proceed since the Australian Competition and Consumer Commission has concerns that the deal may substantially lessen competition in the supply of metallurgical coal to Australian steelmakers.

''South32 has always maintained that metallurgical coal is a globally traded commodity. Given this, South32 is not prepared to make significant concessions in favour of Australian steelmakers that would likely be required to mitigate the competition concerns. To do so would be contrary to the global market in which metallurgical coal producers compete and would adversely affect the value proposition of the acquisition,'' South32 said in a statement.

''Our approach to acquisitions is always opportunistic and seen through the lens of creating value for our shareholders. To proceed with the acquisition, in light of the anticipated concessions, would have compromised the merits of the transaction and this is not something we are prepared to do,'' said, Graham Kerr, CEO of South32.

Australian Steel makers like BlueScope Steel had opposed the deal on the grounds that most of the country's coking coal reserves are with big miners, including BHP, Mitsui and Anglo American, and South32 would have become the only large supplier of coking coal to the eastern Illawarra steelmaking centre.

Peabody, which emerged from bankruptcy this month, said that it was surprised that South32 and Australian regulator had reached an impasse over the acquisition.

"On the other hand, we see continuing opportunities given Metropolitan's quality coking coals and port location, and our objective will be to operate the mine while maximizing returns in the international marketplace," Peabody president Glenn Kellow said in a statement.