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US coal producer Peabody Energy has threatened to terminate its planned acquisition of Anglo American’s coal assets, one of the key pillars of the London-listed miner’s plan to overhaul its business.
Peabody said on Monday that it had notified Anglo of a “material adverse change” affecting the $3.3bn deal for the steelmaking coal assets following an explosion at one of Anglo’s mines in March.
The incident occurred at the Moranbah North mine in Australia, the largest mine by annual production in the deal, which was agreed in November.
On Monday, Peabody said the Moranbah North mine remained inactive and that while the company had “remained on track” to complete the deal, which had been due to close this year, the explosion had “created significant uncertainty around the transaction”.
“A substantial share of the acquisition value was associated with Moranbah North, yet there is no known timetable for resuming longwall production,” said Peabody chief executive Jim Grech.
“If the [material adverse change] is not resolved to Peabody’s satisfaction in the limited timeframe specified under the companies’ acquisition agreements, Peabody may elect to terminate the agreements,” the group said.
In a subsequent statement also published on Monday, Anglo said it did not believe the stoppage at Moranbah North was a material adverse change under the terms of its agreement with Peabody.
Anglo had completed “initial re-entry” to the mine on April 19 and was working with the safety regulator and other stakeholders “as we progress towards a structured restart to longwall production once it is determined that it is safe to do so”, the company said.
“Anglo American expects to continue working with Peabody towards addressing its concerns,” it added.
Anglo has been working on a broad restructuring after fighting off a hostile takeover bid by rival BHP last year. The Peabody deal is a central part of the plan, which also includes the sale of Anglo’s nickel assets and the spin-off of its platinum and diamond businesses.
Another Anglo mine in the Peabody deal, Grosvenor, was hit by a fire last year and has been closed since. In its latest production update in April, Anglo said that steelmaking coal production was 41 per cent lower in the first three months of the year compared with the previous year, primarily as a result of the fire.
The company also said at the time that it was aiming to complete the Peabody deal by the third quarter of the year.
There is usually a high bar for companies to use a so-called material adverse change clause to extricate themselves from a deal. However, such clauses are sometimes used as a means to bring parties to the table to renegotiate a transaction or secure a price cut.
Peabody agreed to pay $1.7bn in cash as part of the deal, as well as deferred payments of $625mn over four years and contingent payments of up to $1bn tied to future milestones.
The sale or listing of Anglo’s De Beers diamonds business has proven challenging, but the group said last month that it was “committed to completing [it] at the right time and when market conditions allow”.
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