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Wesfarmers Ltd offloads its Curragh coal mine for $700 million

The Wesfarmers Ltd (ASX: WES) share price will be one to watch on Friday after it announced the sale of it Curragh coal mine in Queensland.

According to the release, Wesfarmers has agreed to sell the mine to Coronado Coal Group for $700 million under an agreement which also includes a value share mechanism linked to future metallurgical coal prices.

Should the transaction complete successfully, management estimates that it will generate a post-tax profit of approximately $100 million.

Furthermore, for the next two years the company will receive 25% of Curragh’s export coal revenue generated above a realised metallurgical coal price of US$145 per tonne.

The sale is subject to a number of conditions including approval from the Foreign Investment Review Board.

Managing director Rob Scott has stated that the sale is part of the company’s plan to evaluate all strategic options for its Resources division with a view to maximising shareholder value.

No decision has been made on the future of Wesfarmers’ 40% interest in the Bengalla coal mine at this point. Though I suspect it is only a matter of time until this is offloaded as well, allowing the company to focus on its core business.

What now?

I think this was a good decision by the company and expect the market to respond positively to the news.

However, it isn’t yet enough for me to invest. Although its sales growth has been reasonably positive in the first-quarter, I’m still a touch concerned about the margins that both Wesfarmers and rival Woolworths Group Ltd (ASX: WOW) are operating with at the moment.

As a result, I would suggest investors hold off an investment until after its half-year results are announced early next year when all will be revealed.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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