Under the agreement, the Australian mining and metals company will also assume the operatorship of Eagle Downs.

The remaining stake in the project will be held by Aquila Resources Pty Ltd (Aquila), a subsidiary of BaoWu.

The transaction amount includes an upfront payment of nearly $106m upon completion of the acquisition and a deferred payment of $27m due three years after completion.

South32 plans to fund the transaction from its cash reserves.

The transaction is subject to conditions precedent and is expected to close in the first half of the financial year 2019.

South32 chief executive officer Graham Kerr said: “We have a long-standing relationship with BaoWu as a supplier of manganese ore and alloy. We are very pleased to be able to further strengthen this relationship by assuming operatorship of Eagle Downs.

“This Acquisition embeds an attractive development option within our growing operating footprint and puts our strong balance sheet to work in a disciplined manner. This high quality metallurgical coal project benefits from prior investment which has the potential to support its accelerated development and deliver significant value to both South32 and Aquila.”

Located nearly 25km south-east of the town of Moranbah and immediately adjacent to and down dip of BHP Billiton Mitsubishi Alliance’s Peak Downs mine, Eagle Downs is a large, high quality and fully permitted metallurgical coal development project.

After the completion of the acquisition and assumption of operatorship, South32 propose to start a final feasibility study which will seek to optimise the mine’s design and development.

Based on the findings of that study and the receipt of required approvals, South32 in partnership with Aquila plan to build a multi-seam underground longwall metallurgical coal mine and processing plant with a dedicated rail spur and train loadout facility.