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Aquila agrees to sell coal mining stake to Sumitomo

by Paul Whitfield | Published April 3, 2012 at 9:59 AM

Australia's Aquila Resources Ltd. on Tuesday, April 3, agreed to sell its 50% stake in the Isaac Plains Coal Mine to Sumitomo Corp. for A$430 million ($435 million).

The sale, which hinges on Aquila's joint venture partner Vale SA not exercising preemption rights on the stake, is the largest in a series of disposals by the mining company to raise funds for a major iron ore project.

Perth-based Aquila also said Tuesday it had agreed with Sumitomo to develop other coking coal assets in the north of Australia; and had won a key court battle to finalize the sale of a 24.5% stake in another coking coal project to Vale.

Sumitomo's deal for the 50% stake in the Isaac Plains mine is the second acquisition of equity in an Australian mining project in the past week by a Japanese trading company looking to secure supplies of raw materials. On March 30, Marubeni Corp. agreed to pay A$1.5 billion for a 15% stake in Hancock Prospecting Pty. Ltd.'s Roy Hill iron ore project.

Isaac Plains has proven and probable coal reserves of about 65.5 million tons, about 75% of which is coking coal used in steel production. The mine has a production capacity of 2.8 million tons per annum. Brazil's Vale has 60 days in which to exercise its preemption rights on the Isaac Plains stake.

"The sale follows a number of approaches with respect to Aquila's interest in Isaac Plains, with the Sumitomo offer ultimately providing the most compelling value proposition," Aquila said.

Aquila, which is headed by billionaire Tony Poli, is raising funds to finance its $5.8 billion Australian Premium Iron Ore Joint Venture, a West Pilbara, Western Australia mining venture it owns alongside American Metals and Coal International Inc.

Aquila said Tuesday it was still seeking a buyer for its Washpool Hard Coking Coal Project but had pulled plans to sell its Avontuur Manganese project as it had raised most of the equity funding needed for the iron ore project.

In addition to its acquisition, Sumitomo also agreed to create a JV to prospect for coal across about 15 sites owned by Aquila. The agreement includes an option to acquire between 20% and 50% of the assets at a price to be determined at the time that the option is exercised.

Separately, Aquila is also in the process of selling a 24.5% interest in its Belvedere Hard Coking Coal Project to Vale. The Brazilian mining giant exercised an option to acquire the stake in mid-2010 but the deal has been tied up in court after Vale contested the A$330 million valuation of the stake provided by Aquila's adviser, RBC Capital Markets. Vale's adviser, Citigroup Inc., valued the holding at A$117 million. On March 30, the Court of Appeal of the Supreme Court of Queensland dismissed Vale's claim that Aquila's valuation was invalid. Aquila said Monday that it expected to appoint an independent expert to determine the sale price in the coming weeks.

Aquila took financial advice on the sale of its 50% stake in the Isaac Plains mine from J.P. Morgan & Co. and tapped King & Wood Mallesons for legal advice. Sumitomo was advised by Macquarie Capital Advisers and Minera Group and took legal counsel from Allens Arthur Robinson.

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Tags: Aquila Resources Ltd. | energy | middle market | Sumitomo Corp. | Vale SA

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Aquila agrees to sell coal mining stake to Sumitomo

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