(Bloomberg) — Anglo American Plc suffered a major setback to its restructuring plans after Peabody Energy Corp. decided to walk away from a $3.8 billion deal to buy its steelmaking coal business following a fire at an Australian mine.

The firms have sharply disagreed over the impact of the March incident at the Moranbah North mine, an asset which Peabody said made up a substantial part of the deal value. The US coal producer says the fire constituted a material adverse change — a reason to exit the deal. Anglo says it doesn’t constitute an MAC, and plans to start arbitration to seek damages for wrongful termination.

The companies failed to reach a revised agreement that compensated Peabody for the impact of the fire, Peabody said Tuesday. Peabody also terminated plans to sell on one of Anglo’s mines to an Indonesian miner. It will also look to get back a $75 million deposit, according to a person familiar with the situation. 

The deal’s collapse is a fresh headache for Anglo. It agreed in November to sell the coal assets to help dramatically simplify and shrink its business — and focus on copper and iron ore — as it fended off a $49 billion approach from BHP Group. Coal was supposed to be the easiest unit to offload — partly due to the desirable mines — and the deal was seen as a major early win for Anglo, potentially bringing in cash and demonstrating progress to its investors. 

Anglo has already spun off its platinum business and is looking for a buyer for its struggling De Beers diamond division.

Peabody’s shares jumped about 7.5% in pre-market trading. Anglo’s stock edged higher after the announcement, trading up 3.2%.

For Peabody, the coal deal offered a way to boost its presence in metallurgical coal, which is needed to make steel. Still, the deal value seemed a stretch, with the agreed price almost twice the value of Peabody’s current market cap. 

Anglo has repeatedly disputed Peabody’s assertions about the Moranbah fire and said in May it expected to continue working with the US company to close the deal, which was originally expected to happen in the middle of this year. 

The blaze followed a separate fire in 2024 at Anglo’s Grosvenor mine, its largest metallurgical project in Australia, which also remains shuttered and is part of the Peabody agreement.

Peabody’s move to scuttle the Anglo acquisition comes as trade tensions and global economic uncertainty have disrupted the coal market. While President Donald Trump has pledged to boost coal usage, the industry faces significant hurdles — and US output has been tumbling due to high costs, environmental regulations and competition from cheap natural gas and renewable power.

Anglo Chief Executive Officer Duncan Wanblad on Tuesday said the company is confident it can find a new buyer for the mines, and that it received interest in recent months.

Still, any resale process would take place against a backdrop of weaker coal prices than when the Peabody deal was originally agreed, fueling uncertainty over whether Anglo could secure terms as good as it had with Peabody. Anglo has previously said finding a new buyer could delay its coal exit into next year.

“Each side is confident in its own position from a legal perspective” on Moranbah North, Jefferies LLC analysts including Christopher LaFemina said in note this month. “A long arbitration process could be an overhang on shares of both companies.”

(Updates with Anglo comments from second paragraph)

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