BHP has reached an agreement to withdraw up to $1.35 billion from two coal mines in Australia, as the world’s largest mining company continues its withdrawal from fossil fuels.
The company is selling its 80 per cent stake in BHP Mitsui Coal, which operates coal mines in South Walker Creek and Poitrel in Queensland, to Stanmore Resources. The remaining stake in the joint venture is owned by Japan’s Mitsui Corporation.
The sale comes amid COP26 global climate talks in Glasgow and rising prices for coke, a critical component of the steel industry. It also continues BHP’s retreat from fossil fuels as the Anglo-Australian miner seeks a greener portfolio.
BHP recently approved a $5.7 billion plan to complete development of a potash project in Canada, and is looking to increase its exposure to copper and nickel.
“As carbon is removed from the world, BHP is increasing its focus on producing the high-quality metallic coal that global steelmakers are seeking to help increase efficiency and reduce emissions,” said Edgar Bastow, Head of Mining in Australia.
Steelmaking is one of the industrial activities that contribute the most to climate change.
BHP placed its stake in BMC in the block in August 2020, when it also announced plans to exit thermal coal, which is burned in power plants.
The company also sold its stake in a massive Colombian coal mine to Glencore and announced plans to combine its oil and gas assets with Australian oil and gas producer Woodside. It is still looking for a buyer for its remaining thermal coal asset, New South Wales Energy Coal.
“The review process for New South Wales Energy Coal is progressing, in line with the two-year timeframe announced in August 2020,” BHP said on Sunday, adding that it “remains open to all options and continues to consult with relevant stakeholders.”
Even after selling its controlling stake in BMC, BHP will remain the world’s largest coal exporter through a separate alliance with Mitsubishi Corp.
The price of coke has risen this year due to strong demand from China and steel manufacturers in other parts of the world as Covid-19 lockdown restrictions ease.
Australian coke prices have risen from $120 a tonne at the start of the year to nearly $334 a ton, according to a price assessment from S&P Global Platts.
The deal with BHP Stanmore, which has a market capitalization of just $250 million, will turn a major force in the Australian coal industry. The Queensland mine, which it will take over, produced 11 million tonnes of coke in the year to June.
In order to fund the deal, Stanmore is asking shareholders to support a $600 million share issue, while another $625 million will be raised in debt. The coal group is 75 percent owned by Golden Energy and Resources Limited, a Singapore-listed company that has agreed to enter into the BHP Mitsui coal deal.
Under the deal, Stanmore will pay $1.1 billion up front, followed by another $100 million in six months. The price could rise by another $150 million through a coke price-related earnings agreement.
Marcelo Matos, Stanmore’s chief executive, said the deal would make the company a leading producer of coke, and put it in a position to generate “significant cash flow.” The assets you get from BHP produce a similar type of coal to the Isaac Plains mine in Queensland.
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