BHP will slash the value of its Australian thermal coal assets by up to $1.25bn as it seeks to divest the business and focus on more environmentally friendly commodities.
The world’s biggest miner is looking to sell or spin off its New South Wales Energy Coal unit along with stakes in a Colombian coal mine and a joint venture producing another type of coal used in steelmaking.
Chief executive Mike Henry, who was appointed last year, is looking to shift BHP’s portfolio more towards commodities such as copper and nickel, which will be needed in ever greater quantities as the world shifts to cleaner forms or power and transport.
In a quarterly production update on Wednesday, the Anglo-Australian company said it would take a writedown of $1.15bn-$1.25bn on NSWEC, slashing its value to $250m-$350m.
BHP said the impairment reflected current market conditions for its thermal coal, which is used to produce electricity in power stations, as well as the strengthening Australian dollar and an updated assessment of the likelihood of recovering tax losses because of lower profitability in future.
BHP has cited NSWEC’s tax assets as one reason for not unifying its complex corporate structure, which involves listed companies in Australia, where the miner has its headquarters, and in the UK.
The Australian coal industry has been hit by China’s decision to ban imports because of a diplomatic dispute over the origins of the coronavirus pandemic.
Analysts say it will be difficult for BHP to find a buyer for its unwanted coal assets because of growing investor concerns about fossil fuels. They see the company opting for a demerger. Mr Henry has said divesting the assets could take two years.
The impact of China’s blacklisting of Australian coal, plus lingering aftershocks of the Covid-19 pandemic, was evident in Wednesday’s update.
The price BHP received for thermal coal in the six months to December averaged $44.35 a tonne, down 24 per cent on the same period last year. The price for metallurgical coal was $97.61, down 31 per cent.
Metallurgical coal is a big business for BHP, the world’s leading supplier of the commodity. Prices have rallied 20 per cent over the past week, helped by reports that China is allowing some potentially stranded cargoes into the country.
BHP said its flagship iron ore unit shipped a record 145m tonnes of the raw material — also needed to make steel — in the six months to December to meet surging demand from China.
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The company increased its production guidance for its financial year to June to 245m-255m tonnes as a result of the restart of Samarco, BHP’s Brazilian joint venture with Vale.
China’s seemingly insatiable appetite for iron ore boosted the price BHP received to an average of $104 a tonne, up 33 per cent. That could pave the way for BHP to pay a big dividend when it announces half-year results in February.
“A special dividend at interim results is possible,” said Jefferies analyst Christopher LaFemina.
In Wednesday’s update BHP said its board would make a final investment decision on a huge Canadian potash deposit in the middle of the year.
Called Jansen, the project could provide another leg to BHP’s business, alongside its copper, iron ore and oil and gas units.
The company has already spent billions developing Jansen. It reckons more potash, a crop nutrient used by farmers, will be needed by the middle of the next decade to feed a growing global population.
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