Mining M&A makes a mockery of windfall taxes
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to add hyperlinks.
By Antony Currie
MELBOURNE, Nov 26 (Reuters Breakingviews) -Imitation is said to be the sincerest form of flattery. So government officials past and present that instituted windfall taxes on companies will surely feel a warm glow after digesting the details of Anglo American's AAL.L up to $3.8 billion sale of most of its Australian coal mines to Peabody Energy BTU.N. Some 15% of those proceeds are tied to getting a cut from the new owner if the fossil fuel's price soars. Industry bigwigs tend only to like the concept when it benefits them, though.
Anglo boss Duncan Wanblad is far from the first to drill such a clause into an M&A deal. In fact, just about every sale of coal mining assets Down Under in the past couple of years has done so. BHP BHP.AX included one when offloading mines to Stanmore Resources SMR.AX in 2022 and Whitehaven Coal WHC.AX earlier this year. South32 S32.AX followed a similar path for two pit-business disposals, as well.
It's a savvy move. While the sellers might not want to keep the operations any more, prices for thermal coal used for electricity and metallurgical coal used for steelmaking - which is most of what Anglo, BHP and South 32 have been putting on the block - have been volatile of late. And that may well continue as geopolitical, energy security and climate change issues persist.
So imposing their own form of windfall tax, rebranded as revenue or profit share, adds a bit of insurance against any accusations from shareholders of selling too soon at too low a price. BHP's potential payouts last for up to three years, Anglo's for five.
The case for doing so is akin to the argument states make for imposing higher royalties or taxes when fuel and energy prices spike. Yet when the authorities push such levies, corporate executives scream foul play. That happened in 2022 when the government of Queensland, where many of the coal mines changing hands are located, increased the top rate of royalties and pledged to use the proceeds for new hospitals, renewable-energy and water projects. Glencore GLEN.L shelved plans for a new mine in part because of the increase. BHP boss Mike Henry complained the changes made investing in the Australian state unattractive.
Adapting the practice to juice M&A proceeds breezily undercuts such objections, even if it makes financial sense.
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CONTEXT NEWS
Anglo American on Nov. 25 agreed to sell most of its steelmaking coal business to Peabody Energy for up to $3.8 billion in cash.
Peabody will pay just over $2 billion when the deal closes, with another $725 million handed over in annual instalments over four years.
In addition, Anglo will receive two payments tied to the reopening of the Grosvenor mine, which has been closed since a methane fire in June. The company will get $250 million a month after it restarts operations and another $200 million two years later.
On top of that, Peabody could pay Anglo up to a further $550 million over five years if coal prices are above certain levels.
Graphic: Coal prices have been volatile https://reut.rs/3V8LbO4
Editing by Una Galani and Aditya Srivastav
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