It is a serious setback for Aquila, which sold its half share of the Isaac Plains to Sumitomo in July last year for $430 million and was hoping to secure extra funds for its iron operations in Western Australia through the sale of the exploration stake.
Sumitomo was able to make the Isaac Plains acquisition after Aquila’s former JV project partner Vale did not take up its pre-emptive right on the stake.
Last April Aquila penned a memorandum of understanding with Sumitomo subsidiary Sumisho Coal Australia for the potential formation of a JV encompassing Aquila’s portfolio of Queensland-based coal exploration permits excluding the Washpool hard coking coal project and Talwood coal project.
The MoU provided for the potential acquisition by Sumitomo of a 20-50% interest in the tenements, based on independently determined valuations.
“Following two independent valuations, averaging $108.8 million on a 100% basis, Sumitomo has elected not to acquire an interest in the tenements,” Aquila said in a statement.
“Sumitomo’s election concludes the arrangement between the parties in relation to the MoU and the tenements.”
Sumitomo’s decision not to proceed with taking up a share of the exploration portfolio reflects the changing climate over the last 12 months.
Last year Sumitomo said it wanted to accumulate expertise and know-how for use in future projects and would cultivate human resources.
It said it would support a sustainable supply of coking and steam coal with the aim of “helping stabilise coal supplies throughout the world and particularly to foster the growth of steel and electricity businesses in Asian countries, including Japan”
“Sumitomo Corporation positions this participation as one approach to acquire a potential development project for the growth of mid to long-term earnings,” it said last year.
Sumitomo said it planned to accumulate valuable assets in resources industries in order to maintain sustainable growth in the medium and long-term.
It said potential acquisition opportunities including coal mining assets had become more and more limited these days.
But the decision to pull out of the Queensland exploration JV over some of the state’s prospective coal mining areas now indicates a more conservative approach by Sumitomo.