Anglo suffers setback as Peabody walks away from $3.8B coal deal

[Ben Graham]

Anglo American Plc’s (LON: AAL) efforts to streamline its business have hit a major roadblock after Peabody Energy Corp. (NYSE: BTU) scrapped a $3.8 billion deal to acquire its Australian steelmaking coal assets.

The deal collapsed after a fire at Anglo’s Moranbah North mine in Queensland, which Peabody argued constituted a “material adverse change” (MAC), a contractual clause that allowed it to withdraw.

Anglo strongly disputes that interpretation and said Tuesday it will initiate arbitration to claim damages for wrongful termination.

The blaze, triggered by high gas levels in April, halted operations at Moranbah North, one of the most valuable mines included in the package. Peabody maintains that the incident had long-term material impacts and attempted to renegotiate terms. When talks failed, the company pulled out, also canceling plans to on-sell one of Anglo’s mines to an Indonesian buyer.

Anglo countered that there was no lasting damage to equipment or infrastructure, and that progress was being made toward restarting the mine. Chief Executive Duncan Wanblad said he was “very disappointed” by Peabody’s decision but stressed that other bidders had shown strong interest in the assets during the sales process.

Setback for Anglo’s restructuring plan

The withdrawal is a blow to Anglo’s broader restructuring, which aims to simplify the company and sharpen its focus on copper and iron ore. In recent months, the miner has already spun off its platinum group metals unit and is actively seeking a buyer for its struggling De Beers diamond division.

The coking coal sale was supposed to be the most straightforward part of Anglo’s divestment strategy. Investors had seen the deal as a milestone, both in bringing in cash and demonstrating momentum after Anglo rejected a $49 billion takeover bid from BHP Group last year.

Instead, Anglo will now face a lengthy arbitration process, with analysts suggesting a resolution may not come until 2026. In the meantime, the company will need to restart the sales process against a backdrop of weaker coal prices than when the original deal was struck.

For St. Louis–based Peabody, the acquisition was meant to boost its exposure to metallurgical coal, which is vital for steelmaking. Still, analysts had flagged the valuation as aggressive, with the $3.8 billion price tag nearly double Peabody’s own market capitalization at the time of signing.

“Each side is confident in its own position from a legal perspective,” Jefferies analysts said this month, noting that a protracted arbitration could weigh on both companies’ share prices.

Market reaction

Shares of Peabody initially jumped more than 6% in premarket U.S. trading before reversing to -2.8% by mid-morning in New York. Anglo’s stock traded up 1.8% in London after the announcement, though still below earlier levels.

Wanblad reiterated Anglo’s confidence that a new buyer could be found, but any replacement deal would likely stretch into next year and face tougher market conditions.

(With files from Reuters and Bloomberg)