Australia: BHP moves closer to exit thermal coal business

Last year, mining major BHP had signalled its exit from thermal coal business and its increased focus on minerals for use in green technologies, to reposition itself for a lower-carbon world.

Now taking a step forward in this direction, the company has appointed U.S. investment bank JP Morgan to sell its Australian thermal coal mine.

The sale of the mine is expected to be completed by the end of this year and speculations are rife that Australia's Whitehaven Coal Ltd and India's Adani Enterprises would express interest in the purchase of the BHP's South Wales mine.

Details of coal asset being sold

BHP possesses Mount Arthur open-cut thermal coal mine in the Hunter Valley region of New South Wales, Australia. The site produces coal for domestic and international customers in the energy sector.

In FY19 (Jun'18 - Jul'19), raw coal processed at the mine's coal handling plant for export market stood at 17 mn t whereas 2 mn t was supplied to the nearby power station.

Thermal coal accounts for only 3% of the company's portfolio that includes Mt Arthur thermal coal mine as well as the Cerrejon project in Colombia.

BHP's efforts to minimize stake in thermal coal

BHP's thermal coal output (in terms of ownership stake) stood at 27 mn t during the last fiscal year ended Jun'19, down 6% from a year earlier; whereas the company expects a downtrend of more than 13% in the current fiscal ending this June.

A few years back BHP also owned coal mines in South Africa and North America. It produced 73.49 mn t of thermal coal in the year ended Jun'14 - nearly three times the production volume in the year ended Jun'19.

The rising opposition

The current business scenario is increasingly turning hostile towards coal use, with financial investors shunning coal, as it produces relatively higher carbon dioxide emissions than natural gas and other energy sources.

In line with these adverse trends, extractors around the world are getting out of coal. British-Australian rival Rio Tinto finished offloading coal mines in Aug'18. Another mining giant, Anglo American is considering to spinoff or sell its South African coal operations within the next two or three years. Glencore, which had been purchasing coal mines from large competitors, is already limiting its thermal coal output and now BHP is also set to join the exodus.