Tuesday, January 18

BHP expands fossil fuel withdrawal with sale of metallic coal assets

BHP Group will sell its 80% stake in metallurgical coal company BMC to Stanmore Resources in a deal worth up to $ 1.35 billion, extending the global miner’s withdrawal from fossil fuels.

BMC, which is 20% owned by Mitsui & Co, has two operating mines in Queensland with a combined output of around 10 million tonnes of coal per year, as well as the undeveloped Wards Well project. Stanmore, which is majority owned by Golden Energy & Resources of Singapore, will pay $ 1.2 billion in cash with a potential follow-up payment of up to $ 150 million after two years tied to the behavior of coal prices.

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“This transaction is consistent with BHP’s strategy,” Edgar Basto, director of BHP’s Minerals Australia business, said in a statement. “As the world decarbonizes, BHP is sharpening its focus on producing the higher quality metallurgical coal sought by global steelmakers to help increase efficiency and reduce emissions.” The global miner will maintain its exposure to steelmaking coal through its company BHP-Mitsubishi Alliance, which is Australia’s leading producer.

BHP announced in August an agreement to sell its oil and gas operations to Woodside Petroleum in exchange for shares that it will distribute to its own investors. The company said on Monday it was continuing the review process for its thermal coal operation in New South Wales and remained open to all options.

The Melbourne-based miner’s decision-making on coal “was not an impetus to go fossil fuel-free,” CEO Mike Henry said at the group’s annual meeting in London last month. “It was just a cold-eyed assessment of how those commodities fit into the BHP portfolio.” In June, the company agreed to sell its stake in the Cerrejón thermal coal mine in Colombia to Glencore Plc for approximately $ 294 million.

BHP’s strong free cash flow and conservative balance sheet meant that the proceeds from the sale of BMC could be returned to shareholders through a special dividend, said Kaan Peker, an analyst at RBC Capital Markets, in a note. BHP is likely to abandon its remaining thermal coal assets over the next 18 months, he said, with a commercial sale as the preferred route.

The sale was criticized by the shareholder activist group, the Australasian Center for Corporate Responsibility.

“Rather than making tough decisions to liquidate these assets, BHP is running for the door,” Dan Gocher, the group’s climate and environment director, said in a statement. Along with BHP’s proposed oil merger with Woodside, these are not the actions of a climate leader. BHP should retain these assets and decrease production according to a 1.5 ° C path. ”

Brisbane-based Stanmore, which produced about 2.6 million tonnes of metallurgical coal in fiscal 2021, operates the Isaac Plains complex, also in Queensland, and has environmental approval to develop the adjacent Isaac Downs project.

The deal with BMC, which requires approval from Australia’s Foreign Investment Review Board, is expected to be completed by mid-2022. BHP shares rose as much as 1.8% in Sydney following the announcement, while Stanmore rose as high as 24%, its highest level in more than two years.

© 2021 Bloomberg


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