Stanmore Resources’ value accretive acquisitive growth continues with 100 percent ownership of MetRes JV Project

About Stanmore Resources Limited

Stanmore Resources Limited (Stanmore Resources, the Group, ASX: SMR) listed on the ASX in 2009 and has operations and exploration projects in the Bowen and Surat basins. The Group is one of Australia’s largest suppliers of metallurgical coals to global markets with three major coal-producing assets, including the Isaac Plains Complex, and Poitrel and South Walker Creek coal mines. The Group also owns 100 percent of the Millennium and Mavis Downs Mine Project. Metallurgical coal is essential for steel making and consumes 770 kilograms of coal to make one ton of steel.

Remaining 50 percent of MetRes JV acquired for $1.00

Stanmore Resources has paid just $1.00 cash consideration for the remaining 50 percent interest in the MetRes Joint Venture, giving it 100 percent ownership of the Millennium and Mavis Downs Mine Project (Millennium). The acquisition terms include assuming liability for Stanmore’s existing $105 million finance facility with MetRes and potential future environmental rehabilitation liabilities. Acquisition terms also include royalties on life-of-mine coal sales, but only after Stanmore’s investment in the Project has been fully recouped, including Stanmore’s existing $105 million loan facility. Royalty payments are also contingent on specific agreed coal prices being realised.

Taking the Millennium acquisition from 50 to 100 percent streamlines the tax and accounting consolidation process, resulting in stronger reported future Group cash flow and earnings. One hundred percent ownership of Millennium also boosts operational efficiency between Millenium and Stanmore’s adjacent mine sites as well as overcoming some development challenges.

Seamless integration of BHP Mitsui Coal (BMC) acquisition

Stanmore Resources has an impressive track record of successfully integrating synergistic acquisitions as evidenced by its transformative BMC acquisition for US$1,593 million. The first tranche of US$1,323 million for its initial 80 percent interest settled in May 2022, followed by a payment of US$270 million for the remaining 20 percent in October 2022. Significantly, this well-timed large-scale acquisition has benefited from continuing high metallurgical coal prices and a change in functional currency from Australian dollars to US dollars. The change in functional currency occurred because the Group’s significantly higher revenue from the BMC assets is received

in US dollars, while local labour and material costs are incurred in Australian dollars. This explains why Stanmore’s financial statements are now prepared in US dollars. The currency differential means that US dollar revenue and Australian dollar costs result in higher margins and cash flow.

The BMC acquisition has enabled Stanmore to reduce peak Group debt from US$795 million immediately before the BMC acquisition to US$183 million of debt at 31 December 2022. This debt level continues to decline, and Stanmore is likely to close out the December 2023 financial year with net cash of US$126 million, after accounting for the Group’s long-term debt position and after paying a special dividend to shareholders in November 2023. The share value accretion of the BMC transaction is evidenced by Stanmore Resources’ strong share price growth of well over 50 percent since the acquisition was announced in May 2022.

The future

During the past several years, management have successfully navigated the Group through the effects of global inflation, Covid pandemic supply chain disruption, labour constraints, and adverse weather events. At the same time, robust global demand and firm pricing for metallurgical coal is generating strong operational cash flows, building on Stanmore Resources’ already strong balance sheet.

When releasing the half-year results on 14 August 2023, management referred to exploring acquisition opportunities where it makes financial and commercial sense to do so. This statement implies that Stanmore is actively seeking geographical synergies from existing mining infrastructure in the Bowen Basin where it can streamline the control of mining operations and achieve positive incremental shareholder returns.

Against this background, shareholders can anticipate more value-accretive, synergistic acquisitions in the period ahead that complement Stanmore Resources’ existing world-class assets.