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South32 Limited has entered into a binding agreement to sell Illawarra Metallurgical Coal for $US1.65 billion ($2.5 billion).

An entity owned by Golden Energy and Resources (GEAR) and M Resources is set to snap up the assets, with the deal expected to be completed by the end of the year.

“GEAR and M Resources are established participants in the Australian metallurgical coal industry, with a strong commitment to environmental and safety standards, who are well positioned to continue Illawarra Metallurgical Coal’s contribution to the local steel industry and the Illawarra and Macarthur regions,” South32 chief executive officer Graham Kerr said.

“Our focus remains the safe and reliable operation of Illawarra Metallurgical Coal. Over the coming months we will work with the buyer, our workforce, the local community, government, customers and suppliers to support a successful transition of ownership.”

The transaction comprises a deferred cash consideration of $US250 million ($385 million), payable in 2030, and is contingent on a price-linked cash consideration of up to $US350 million ($539 million).

South32 said the sale will significantly reduce the company’s capital intensity, with Illawarra Metallurgical Coal currently comprising 35 per cent of the company’s capital expenditure.

“This transaction will realise significant value for our shareholders and is consistent with our strategy to reshape our portfolio toward commodities critical in the transition to a low-carbon future,” Kerr said.

“It will streamline our portfolio, strengthen our balance sheet and unlock capital to invest in our high-quality development projects in copper and zinc. The transaction will also simplify our business and reduce our capital intensity.

“Illawarra Metallurgical Coal produces high-quality metallurgical coal, a key ingredient in the production of steel, which will be required until low-carbon steel becomes economically viable on a commercial scale.”