- Wednesday, October 16, 2024
Mining giant BHP Group and Japan's Mitsubishi have reached an agreement to sell their jointly owned coal mines in Australia for up to $4.1 billion in cash. The deal involves the sale of the Blackwater and Daunia mines in the Bowen Basin of Queensland to Whitehaven Coal.
As Australia's largest producer and exporter of metallurgical coal, the BHP Mitsubishi Alliance is shifting its focus to high-quality coal that can help curb carbon emissions produced by steel mills. The deal includes $2.1 billion in cash upon completion, as well as an additional $1.1 billion over the next three years. There is also a potential for up to $900 million in price-linked payments over three years if coal sales exceed agreed thresholds.
BHP confirmed that Whitehaven will assume all current and future environmental liabilities and rehabilitation obligations once the sale is finalized. The Blackwater and Daunia mines primarily produce metallurgical coal, which is shipped mainly to buyers in Asia. While these mines have a long history and produce significant amounts of coal each year, they are considered to have lower-quality coal compared to other operations in the joint venture.
BHP's Chief Executive, Mike Henry, explained that selling these mines allows the company to concentrate its portfolio on the best assets. Whitehaven, on the other hand, sees this deal as transformative and plans to increase its exposure to steelmaking coal, which is in high demand in Asia. The company is considering selling a minority interest to global steel producers to help finance the deal.
This agreement follows BHP's previous sale of controlling interests in two mines to Stanmore Resources for around $1.35 billion, as well as the sale of a minority interest in a Colombian mine to Glencore, a Swiss commodities giant.
With this transaction, BHP Group and Mitsubishi continue their strategic reshuffling in the coal industry, while Whitehaven Coal strengthens its position as a leading player in steelmaking coal.
BHP Plans to Keep Mining Coal While Shifting Focus to Industrial Metals
BHP, the world's top miner, recently announced that it failed to find a buyer for its last thermal-coal mine, the Mt. Arthur coal operation in Australia. As a result, the company has decided to continue mining the pit for several more years before eventually closing it and commencing rehabilitation work.
Despite this setback, BHP has been strategically shifting its focus towards commodities that are expected to experience higher demand in the midst of a global energy transition. The mining giant is particularly optimistic about industrial metals such as copper and nickel, as well as potash, which is a key ingredient in fertilizer production.
In May, BHP made its largest acquisition in over a decade by purchasing Australian copper miner OZ Minerals. Prior to that, the company reached an agreement with Australia's Woodside Energy to divest its global petroleum business.
While BHP acknowledges the importance of reducing its reliance on coal, the company still recognizes its significance as a lucrative investment. In fact, BHP's coal interests accounted for 18% of the group's underlying Ebitda in the year ending June, boasting an impressive margin of 46%.
BHP firmly believes that high-quality metallurgical coal will continue to play a vital role in fueling blast furnaces within the steel industry for many years to come. This conviction stems from the anticipated growth in steelmaking, particularly in countries like India that heavily rely on imports of steelmaking coal in contrast to China.
As part of its long-term strategy, BHP intends to further develop its valuable metallurgical coal assets in Queensland. These assets are highly sought after by global steelmakers and are essential in supporting the ongoing energy transition.
Upon completion of the sale, BHP plans to allocate the profits towards reducing its net debt. The company expects the transaction to be finalized by the end of the quarter ending June 30, 2024.
In other news, BHP reported a 16% decline in first-quarter metallurgical coal output compared to the same period last year. This decrease was partly due to planned plant maintenance. However, the miner also noted an increase in copper output despite lower iron-ore production. BHP remains confident in meeting its fiscal-year production and cost estimates across all its operations.
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