Wesfarmers (ASX:WES) has signed an agreement with the Coronado Coal Group to sell the Curragh coal mine in Queensland for A$700M, resulting in an after-tax profit of approximately A$100M.
The sales price also includes a variable component as a part of the price will be based on some sort of ‘windfall benefits’ scheme. Wesfarmers will be entitled to 25% of the revenue from coal exports sold at a price of in excess of US$145/t for the next two years. As the Curragh mine will produce approximately 8.5 million tonnes of metallurgical coal on top of the 3.5 million tonnes of steaming coal, an average coal sales price of US$165/t over the next two years would result in additional cash payments of approximately US$85M to Wesfarmers.
Wesfarmers did well with Curragh, as it acquired the property in 2000 for A$200M where after it invested in production increases (from 4.5Mt to 12M tonnes per year). According to the company, the asset will have resulted in an internal rate of return of 49% (on an after-tax basis), which really is an excellent IRR. A good deal for Wesfarmers, but this won’t move the needle for this multi-billion dollar conglomerate.