Wesfarmers said to start A$2b Australian coal sale

[SYDNEY] Wesfarmers Ltd, the Australian retail-to-fertilizer conglomerate, has kicked off a sale process for its two coal mines in the country after prices for the commodity soared this year, according to people with knowledge of the matter.

The Perth-based company has sent preliminary information on the Curragh and Bengalla mines to potential buyers ahead of calling for bids, the people said, asking not to be identified as the details aren't public. Wesfarmers is working with UBS Group AG on the potential divestments, which may fetch as much as A$2 billion (S$2.14 billion), two of the people said.

Prices for coking coal, a material used in steelmaking, have nearly quadrupled this year as China cut its own production to ease overcapacity. Anglo American Plc's board recently rejected a bid for its Australian metallurgical coal assets after deciding the offer was too low given the recent price rise, people familiar with the matter said earlier this month.

"I believe every owner of a coal asset in Australia would consider selling in the current environment," Matthew Boyle, a Sydney-based industry consultant at CRU, said in an e-mail. "However, coal selling prices need to be at high levels for a prolonged period before this flows into coal producers' books." Wesfarmers is considering options for the coal mines, including a sale, and recently sought expressions of interest from parties who may want to acquire the assets, the company said in an exchange statement Wednesday. There's no certainty the process will lead to a transaction, according to the statement.

The company's shares rose as much as 2.6 per cent Wednesday in Sydney trading, the biggest intraday gain since August, while the S&P/ASX 200 Index rose as much as 0.4 per cent.

Wesfarmers said in August it was evaluating strategic options for the resources unit as the outlook for its industrial division remained challenging in the short term. A spokeswoman for UBS declined to comment.

The sale would be a "positive development" for Wesfarmers credit and "should allow the group to reduce debt and earnings volatility," Deutsche Bank AG analysts led by Gus Medeiros wrote in a research note dated Tuesday.

Curragh, located in Queensland's Bowen Basin region, produces about 8.5 million metric tons of metallurgical coal and 3 million tons of thermal coal a year, according to Wesfarmers's website. The company also owns 40 per cent of the Bengalla thermal coal mine in the Hunter Valley region of New South Wales state, which supplies as much as 6 million tons a year.

Rio Tinto Group in March sold its 40 per cent stake in Bengalla to Australian coal producer New Hope Corp for about $606 million, data compiled by Bloomberg show. Taiwan Power Co and Japanese trading house Mitsui & Co each hold 10 per cent stakes in the mine, the Bengalla website shows.

BLOOMBERG