Whitehaven Coal Ltd (ASX: WHC) shares have returned from a brief trading halt and are racing higher.
In afternoon trade, the coal miner's shares are up 15% to $7.79.
Why are Whitehaven shares racing higher?
As we covered here earlier, Whitehaven Coal requested a trading halt this morning as it prepared an announcement relating to its proposed acquisition of the Daunia and Blackwater metallurgical coal mines. These are currently owned by the BHP Group Ltd (ASX: BHP) Mitsubishi Alliance (BMA).
That announcement is now out and the market has responded extremely positively.
According to the release, Whitehaven Coal will acquire 100% of the metallurgical coal mines from BMA for an aggregate cash consideration of US$3.2 billion (A$5 billion).
This comprises US$2.1 billion upfront consideration payable on completion, as well as a total of US$1.1 billion in separate tranches of deferred consideration. The latter are payable on the first, second and third anniversary of the completion date.
In addition, there are contingent payments of up to US$900 million. These comprise three annual payments that will be made depending on realised pricing exceeding agreed thresholds. Each annual contingent payment capped at US$350 million.
The good news is that the company won't need to raise capital to fund the acquisition. Instead, it will use available cash, a US$900 million bridge facility, and future cashflows to make the payments.
Why acquire these assets?
If everything goes to plan, the company expects to generate strong returns from the deal. This may explain why Whitehaven Coal shares are charging higher this afternoon.
Management notes that it is a "highly attractive acquisition for Whitehaven and is expected to be materially earnings accretive."
It is also expected to offer "significant value upside with attractive growth opportunities in Queensland's Bowen Basin. This includes synergies with Whitehaven's Winchester South development project."
Another positive is that the deal transforms Whitehaven into a metallurgical coal producer in line with strategy. Its pro-forma managed Run of Mine (ROM) production will be around 40 million tonnes per annum. Whereas its pro-forma revenues will be around 70% metallurgical coal and 30% thermal coal.
Management expects the deal to be completed before the end of FY 2024.
'Transformational acquisition'
Whitehaven Coal's CEO and Managing Director, Paul Flynn, believes the transaction will be transformational. He commented:
This is a compelling transaction for Whitehaven that accelerates our strategy, transforms our company and delivers substantial value for our shareholders.
This transformational acquisition will pivot our portfolio towards metallurgical coal, which has been a core pillar of our strategy for many years making this a better balanced business. Our thermal coal business remains strategically important as we continue to provide much-needed coal products to support the global energy transition and as customers seek our high-quality and high-CV products to limit their emissions.
