Shares in ASX resources company Stanmore Resources Ltd (ASX: SMR) have jumped out of the starting blocks today to now trade 15% higher at $1.19 apiece. Earlier in the session, the share price touched $1.28 a share.
Stanmore Resources share price is leading the pack after a confirmed agreement with BHP Group Ltd (ASX: BHP) to acquire an interest in the BHP Mitsui Coal (BMC) joint venture.
The transaction is expected to close for a cash consideration of up to US$1.3 billion in mid-CY2022, according to the company.
Here are the details out of Stanmore's camp today.
Stanmore to acquire interests from BHP
Stanmore has signed a share purchase and sale agreement to acquire BHP's 80% stake in the BMC project.
It will now assume all economic and operating control of BMC on completion of the sale, including its share of all future liabilities.
BMC is a metallurgical coal joint venture that has operations in Queensland and owns the "world-class" South Walker Creek and Poitrel mines.
Combined, it has a total metallurgical coal production of around 10 million tonnes (Mt) per annum and total marketable reserves of more than 135Mt.
And with the price of coal still at 5-year highs after a sharp pullback in recent months, investors appear to have piled into Stanmore Resources shares on the news today.
BMC also recorded annualised revenue of more than US$1.5 billion and EBITDA of US$696 million in the 12 months to September 30 2021 when adjusting on a 100% ownership basis.
Embedded into the acquisition are port and rail agreements that support a minimum of 10.5 million tonnes of resource per annum through various coal terminals.
The deal structure itself is a curious one, to be finalised through a number of subsidiary vehicles.
For instance, to complete the transaction, Stanmore has established a new subsidiary to acquire all of the shares of Dampier Coal, a company owned by a subsidiary of the BHP Group.
It is these daughter companies of BHP that actually own the stake in BMC – not the Group itself.
So even though BHP is divesting its stake at BMC, Stanmore isn't purchasing anything directly from the resources giant.
In terms of valuation, the deal represents an Enterprise Value/EBITDA multiple of 6.9x, excluding a US$150 million "price-linked earnout" embedded in the contract.
Stanmore intends to finance the US$1.3 billion transaction through a debt facility of US$625 million, its own reserves, and a partially underwritten entitlement offer of ordinary shares for $600 million.
The transaction is expected to close in mid-CY22, according to the company, and is still subject to several conditions and approvals.
What next for Stanmore Resources?
Stanmore states the acquisition is "transformational" for the company as it "creates a leading global metallurgical coal producer with a portfolio of high quality assets in the Bowen Basin".
In combination with the purchase, the company also expects greater production next calendar year at its other projects, including the MetRes Millennium and Mavis mines.
Speaking on the announcement, Stanmore's CEO Marcelo Matos said:
This is an exciting and transformative acquisition for Stanmore, and we are fortunate to be able to rely on the full support received from our controlling shareholders, GEAR as well as the Sinar Mas Group, to successfully execute this deal.
Matos continued:
This transaction will see the Company become one of the leading metallurgical coal producers globally and provide Stanmore with a portfolio of tier 1 assets, with a significantly increased reserves and resources base and assets with an expected mine life exceeding 25 years production, positioning the company for substantial cashflow generation and future growth opportunities.
Stanmore Resources shares have climbed 62% into the green these past 12 months after rallying 48% this year to date.
