South32 terminated the US$200 million purchase contract after it was unable to obtain approval from the Australian Competition and Consumer Commission within the timeframe required under the contract. 

On February 23 2017, the ACCC issued a Statement of Issues, concerned the proposed acquisition might substantially reduce competition in the supply of metallurgical coal to Australian steelmakers.

South32 said it always maintained that metallurgical coal was 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,” the company said in a statement. 

“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 CEO Graham Kerr said the company’s approach to acquisitions was 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,” he said. Peabody Energy CEO Glenn Kellow said he was surprised South32 and the ACCC reached an impasse, “given both the physical synergies and the global nature of the metallurgical coal markets.

"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," he said. 

Metropolitan Mine, which exports coal from Port Kembla in New South Wales, sold 2 million short tons of hard coking coal in 2016 and has approximately 26Mt of proven and probable reserves at December 31 2016.  The mine employs about 250 employees and contractors. 

As a result of South32 not completing the acquisition of the mine, Peabody will retain the previously negotiated deposit. 

The termination of the transaction has no effect on operations, and Metropolitan intends to fully resume shipments following the scheduled completion of a longwall move to a new coal panel at the end of May. 

Peabody intends to update its 2017 targets including Metropolitan Mine in its forthcoming first quarter 2017 earnings release.