Aurizon, Macquarie, Brookfield propose Wiggins Island Coal Export Terminal buy

13 November 2017 - 12:00 am UTC

Coal freight company Aurizon has confirmed it has proposed a takeover of the Wiggins Island Coal Export Terminal (WICET) in Queensland.

WICET is located in the Port of Gladstone in the state’s north. It is owned by a consortium of five mining companies: Aquila Resources, Glencore, New Hope Group, Wesfarmers Curragh and Yancoal.

Sources familiar with the matter said the approximately AUD 4bn offer involves Macquarie Capital and Brookfield also taking over some of the mines that supply ore to the debt-laden port operator. 

WICET had AUD 3.28bn (USD 2.5bn) in senior debt and a form of subordinated debt known as a GiLT subscription, in a USD 67.8m tranche and an AUD 441m tranche, according to its latest available financial report for the 2015-16 financial year. It had total borrowings of AUD 4.36bn.

It is understood the senior debt component is due to be repaid in September 2018.

There are understood to be 19 lenders involved including ANZ Bank, as well as infrastructure funds, including IFM Investors, lending subordinated debt.

Sluggish demand for coal and a steep price plunge in both coking and thermal varieties two years ago pushed some smaller coal mines into liquidation, including Caledon Coal. The remaining partners had to take on more of the port’s debt and pay higher usage fees, prompting concerns the owners will not be able to repay the debt when it falls due. 

In a statement on Monday (13 November), Aurizon said it was in preliminary discussions on a “restructuring proposal” for WICET. It said the deal involved Aurizon buying WICET and the other consortium members one or more of WICET’s source mines from the owners.

“The consortium proposal would secure long-term volumes for WICET,” it said.

“In addition, through restructuring and the proposed introduction of lower, market-competitive port charges, there would be incentive for miners to increase throughput at the port.”

It is understood there are several months of negotiations to go to hammer out a deal, but it is thought the intention is to see senior lenders repaid. It is uncertain what the outlook is for junior lenders including IFM. 

One of the mines supplying coal to WICET is Glencore’s Rolleston coal mine, which produced 13.3m tonnes of “saleable coal” in 2016.

The company noted the reported interest in the mine. It and fellow owners Itochu and Sumitomo began a sale of the mine in August and it is understood they expect to complete the sale in the first half of 2018.

“We welcome the reported interest from Macquarie Capital, Brookfield and Aurizon and are open to receiving a proposal from them and all other interested parties,” the company said.

“We will assess bids as they are received in line with the process timetable.”

RBC analyst, Paul Johnston, said in a note on Monday that WICET would be a good strategic fit for Aurizon.

“Aurizon’s position as a rail haulage provider for many WICET customers should put it in a solid position to assess the counter-party risks and economics of WICET across different restructuring and access charge proposals,” he stated.