Chinese steel giant wants out of Queensland after $300m settlement

afr.com:

China’s biggest state-owned steelmaker, Baowu, has taken a big step towards exiting the Queensland coking coal sector, shelling out close to $300 million to settle a disastrous deal that forced it to pay for port and rail capacity it has never used.

Annulment of the costly port contract with the Wiggins Island Coal Export Terminal (WICET) clears the way for Baowu to push ahead with efforts to sell its stake in the Eagle Downs coking coal mine that was intended to fill the WICET port capacity.

The developments mean that 100 per cent of the undeveloped Eagle Downs mine is now on the market; South32 has been trying to sell its 50 per cent stake in Eagle Downs for more than two years.

Baowu has controlled half of Eagle Downs since it led the $1.42 billion privatisation of ASX-listed Aquila Resources in 2014.

Aquila had signed ambitious “take-or-pay” port, rail, electricity and water contracts in 2011 in the expectation it would develop a large coal export business from Eagle Downs and other coal leases in the southern part of the Bowen Basin.

Those take-or-pay contracts must be paid regardless of whether the service is used and have since plagued Aquila, which is 85 per cent owned by Baowu.

Aquila has spent $257.5 million on WICET port capacity alone since 2015 despite never shipping a single tonne of coal through the port.

The WICET contract was set to cost the Aquila partners a further $375.9 million over the remaining life of the contract, prompting them to seek an early exit.

Sources confirmed that WICET shareholders – Yancoal, Coronado Global Resources and Glencore – have in recent months accepted Aquila’s settlement offer, which was understood to be about $300 million in a lump sum.

Resolution of the WICET obligations