South32 drops Peabody deal

South32 is ditching its first major deal since spinning off from BHP Billiton in 2015.

On Tuesday, the Perth-based company said it was walking away from Peabody Energy’s Metropolitan Colliery coal mine and its minority stake in the Port Kembla coal export terminal, both in Australia.

It had agreed to pay at least $200m for the assets in 2016, but Australian regulators raised concerns the sale would weaken competition among coal suppliers to domestic steel makers. South32 said it was not willing to make concessions necessary to get the sale cleared.

The failure of the deal “is unfortunate” for South32 “considering the obvious synergies with its existing Illawarra operations”, RBC Capital Markets analyst Paul Hissey said in a research note. The proposed acquisition was a “progrowth catalyst for South32”.

The failure of the deal comes as prices for the coal are surging amid weather-related disruptions in Australia. It also comes just two weeks after St Louisbased Peabody emerged from bankruptcy and relisted on the New York Stock Exchange.

South32 shares lost 1.1% to A$2.80 at lunchtime in Sydney. The benchmark S& P/ASX 200 index dropped 1.1% too.

“To proceed with the acquisition, in light of the anticipated concessions, would have compromised the merits of the transaction and this is not something we are prepared to do,” South32 CEO Graham Kerr said in the statement.

Peabody said it would keep the mine and the terminal stake, along with a deposit negotiated as part of the deal.