BHP Group, the world's largest miner based on market value, has announced that Australia's Whitehaven Coal has been selected as the preferred bidder for two steelmaking coal mines it co-owns with Mitsubishi Corp of Japan.
Focusing on High-Quality Coal and Carbon Emissions
Earlier this year, BHP disclosed that its joint venture, BHP Mitsubishi Alliance, was actively seeking a buyer for its Daunia and Blackwater mines in Australia's coal-rich Queensland state. The joint venture, which is Australia's leading producer and exporter of metallurgical coal, aims to concentrate its efforts on high-quality coal that it anticipates steel mills will increasingly purchase to reduce their carbon emissions.
Whitehaven Coal's Selection as the Preferred Bidder
In a quarterly production report released on Wednesday, BHP confirmed that Whitehaven Coal had emerged as the preferred bidder in the divestment process. However, no further details regarding the bid or the timeline for any potential deal were provided, and BHP declined to comment when approached by the media.
Whitehaven Coal has requested a trading halt on its shares until an official announcement is made regarding its bid for the mines.
The Blackwater and Daunia Mines
The Blackwater and Daunia mines together produce millions of metric tons of metallurgical coal each year for steel production. The majority of this coal is shipped to buyers across Asia. Notably, the Blackwater mine, which commenced operations in 1967, stands as one of the longest-operating coal mines in the Southern Hemisphere.
Concentrating on the Best-of-the-Best Assets
Compared to other operations managed by the joint venture, these two mines produce lower-quality coal. BHP had previously stated that in terms of future investment, these mines would face challenges. As BHP Chief Executive Mike Henry stated in February, the company's objective is to concentrate its portfolio on the best-of-the-best assets.
BHP's Prior Divestments
In a deal worth approximately $1.35 billion, BHP sold its controlling stake in two other mines to Stanmore Resources last year. Additionally, BHP disposed of a minority interest in a Colombian mine to Swiss commodities giant Glencore.
BHP's Plans for Mt. Arthur Coal Mine Fall Through
BHP, the world's top mining company, has faced disappointment as it failed to find a buyer for its last remaining thermal-coal mine, the Mt. Arthur coal operation in Australia. In response, BHP has decided to continue mining at the site for several years before commencing rehabilitation work.
Shifting Focus to High-Demand Commodities
Amid a global energy transition, BHP has been strategically pivoting towards commodities that are expected to experience increased demand. The mining giant has set its sights on industrial metals such as copper and nickel, as well as the fertilizer ingredient potash. As part of this strategic shift, BHP made its largest acquisition in over a decade by purchasing Australian copper miner OZ Minerals in May. Additionally, the company recently reached an agreement with Australia's Woodside Energy to divest its global petroleum business.
Continued Importance of Coal
Despite its efforts to diversify, coal remains a vital source of revenue for BHP. In fact, their coal interests accounted for 18% of the group's underlying Ebitda in the fiscal year through June. This segment boasts an impressive 46% margin.
BHP firmly believes that high-quality metallurgical coal will continue to be in demand for blast furnaces in the steel industry over the coming decades. The company highlights the importance of these coals in reducing greenhouse gas emissions intensity in blast furnaces. Unlike China, which relies on domestic sources of steelmaking coal, countries like India depend on imports.
Recent Performance and Future Outlook
In their quarterly report released on Wednesday, BHP noted a decline in output for metallurgical coal and iron ore, both essential ingredients in steel production. However, copper production saw a significant increase compared to the same period last year. Despite these variations, BHP remains confident that it will meet its fiscal-year production and cost targets for all its operations.
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