Coal mine fire could slow Anglo American's asset sale plan

Anglo American's plans to sell its coking coal assets in Australia have suffered a setback after a fire at its Grosvenor mine could put it out of action for months.

The loss of production at Grosvenor, which accounts for about 1.3% of the world's seaborne coking coal, has already been blamed on a $20 per tonne increase in the price of the steelmaking material to $254 per tonne on the Singapore Exchange.

Until the fire was reported, the price of coking, or metallurgical, coal had been falling sharply, from $264/t at the beginning of last month to $234/t.

Grosvenor and other Anglo American-controlled coal assets in Australia have been earmarked for sale as part of a major restructuring of the London-based miner after it rebuffed a takeover bid from rival BHP.

Other Anglo American assets at risk of disappearance include diamond business De Beers and platinum producer Anglo American Platinum.

$5 billion deal

The coal sale process has reportedly reached the point where investment bank Morgan Stanley will be tasked with managing what is expected to be a $5 billion deal, The Australian newspaper reported last week.

But days after that decision was announced, a fire broke out at Grosvenor, an underground mine that suffered a similar gas explosion and fire in 2020 and remained closed for 18 months while repairs were carried out.

Although it is impossible to draw a straight line between the coal fire and Anglo American's share price, it fell 4% in early trading on the London Stock Exchange yesterday, before recovering to post a 2% decline.

Demand for coking coal is growing strongly due to strong consumption in India and China.

The price is also highly exposed to supply disruptions and shortages in Australia, which supplies 60% of the world's seaborne traded materials.

Two weeks ago, Morgan Stanley's investment advisory arm listed coking coal as its top commodity pick for the September quarter, “as strong Indian demand and lagging Australian supply tighten the balance in the fourth quarter,” the bank said.

Morgan Stanley told clients yesterday that the duration of the Grosvenor outage was uncertain but that it was likely to extend for several months because “the same mine was suspended for 18 months following an explosion in May 2020”.

Early market tightening

The bank said the Grosvenor issue would help cause an earlier tightening in the coking coal market after seasonal weakness, with the price expected to rise to $290/t in the fourth quarter.

UBS, another investment bank, said Grosvenor is expected to increase its annual output from around 3 million tonnes to 5 million tonnes from next year and then to 7 million tonnes by 2027.

“However, given the history of the site and the ongoing challenges associated with this second gas ignition event, the future of Grosvenor is uncertain,” UBS said.

The flip side of Anglo American's problem is the premium it receives for junior coking coal mining companies listed on the Australian stock exchange.

Whitehaven Coal's share price has jumped 12% in the past two days, hitting a 12-month high of A$8.60, while Coronado Global is up 12.5% ​​to A$1.34.

UBS estimates Whitehaven shares will rise to A$10.90 while Coronado shares will rise to A$2.70.