BHP set to sell more Australian coal mines as profit falls

Mining giant BHP has revealed plans to sell off two more of its Australian coal mines after posting a sharp fall in half-year profit driven by soaring inflation and weaker commodity prices.

BHP, the largest Australian mining company, told investors on Tuesday it had launched a process to divest its Daunia and Blackwater metallurgical coal mines – two of the nine coal mines it jointly owns with Japan’s Mitsubishi in central Queensland.

BHP’s latest profit came in weaker than expected. Credit: Tony McDonough

The move is the latest sign of the company repositioning its portfolio away from fossil fuels and towards what it terms “future-facing” commodities such as copper and nickel that will be needed as raw materials in renewable energy and electric cars.

BHP chief Mike Henry said the company was seeking to concentrate its coal business towards its highest-quality assets, but added that the decision was also partly due to the Queensland government’s “radical” hike in coal royalties last year that had worsened the economics of the two mines.

“It’s really both — the kind of the broad strategy that we have around that chasing the best of the best, exacerbated by recent changes on the royalty front,” Henry said.

Since 2021, BHP has sold off one of its last-remaining thermal coal mines, a series of metallurgical coal mines and its entire global oil and gas division. BHP’s remaining coal assets include the Mount Arthur thermal coal mine in the NSW Hunter Valley, which it plans to close in 2030, and the nine metallurgical coal mines it owns through the BHP-Mitsubishi joint venture in central Queensland.

Henry stressed that BHP was committed to continuing to mine metallurgical coal from its six remaining Queensland mines, saying high-quality coals will be vital to helping steel-makers decarbonise by improving the efficiency of their blast furnaces. BHP expects traditional furnaces, which use coal, to still account for the majority of the steel sector by 2050 despite the gradual uptake of alternatives such as steel made with zero-emissions hydrogen.

“Those assets we see as having upside through the energy transition, and what we are doing here is further concentrating our portfolio on the best of the best,” Henry said.

The announcement of the mine sales came as BHP told investors on Tuesday that inflationary pressures had added about $1 billion in costs through factors such as higher diesel prices, at the same time as slowing demand from China last year had pummelled the price of the steel-making raw material iron ore, which accounts for more than half of BHP’s earnings.

Underlying profit for the six months to December had slumped by 32 per cent to a weaker-than-expected $US6.5 billion ($9.4 billion).

“BHP’s first half was surprisingly poor, but is a strong indicator of what is a still challenging inflationary environment for the miners,” Royal Bank of Canada analysts Tyler Broda and Kaan Peker said.

Shareholders will receive an interim dividend of US90¢ a share ($1.30), down from $US1.50 the miner paid out at the same time last year. The payout isn’t as high as recent record dividends provided by the company, although it’s still the fifth-largest handed out to shareholders.

Don Hamson of Plato Investment, which owns shares in BHP, said the 40 per cent dividend reduction was a “pretty big number”, but not a shock given commodity prices had eased in the December half.

“It’s coming off a record year – they had an absolute cracker last year – so it wasn’t that unexpected,” Hamson said. “About 80 per cent of the reduction was lower commodity pries and 20 per cent was wage and cost inflation ... and we know inflation is running pretty high here in Australia.”

Some company executives in the mining sector have voiced caution about the threat of volatile demand this year as China’s economy reopens following the end of its strict zero-COVID policy, fearing a growing wave of infections could dent steel commodity sales. However, Henry on Tuesday said BHP was increasingly confident that China would be a “stabilising force” for demand in 2023, offsetting slower growth in Europe and the US.

“We now have even greater conviction that China will be a stabilising force for global economic growth over the remainder of this year,” Henry said.

After bottoming out below $US80 a tonne in October last year, iron ore prices have been rallying this month, and are trading back above $US120 a tonne. BHP’s shares closed 0.3 per cent lower at $48.30 on Tuesday.

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