BHP moves ahead with coal exit plan

BHP is moving ahead with its plan to exit coal. Picture: Supplied.

Resources giant BHP is understood to have hired UBS to work on the $7bn sale or demerger of its coal mines.

It comes after the group also called on the services of Goldman Sachs for the plan, as revealed by DataRoom last week.

BHP confirmed at its results on August 18 that it would sell its Mount Arthur thermal coal mine operation in NSW, the stake in its Cerrejon thermal coal mine in Columbia and two metallurgical coal mines in Queensland held as part of an alliance agreement with Mitsui Coal.

Analysts at stockbroking firm Shaw and Partners put the collective value of the portfolio at a about $7bn, with Mt Arthur worth $3.224bn, Cerrejon $656m and the two Bowen Basin Queensland mines – South Walker Creek and Poitrel - at $3.185bn.

UBS has gained the BHP mandate as it also works for energy giant Chevron selling its 16.67 per cent interest in the North West shelf project off the coast of Western Australia, with the stake estimated to be worth about $5.8bn.

It remains unclear whether UBS’s role with BHP involves working on the demerger plan with Goldman Sachs or if it is only mandated on for a trade sale of the $3.2bn Queensland mines.

The understanding is that BHP will package up the metallurgical coal mines with the thermal coal mines and demerge the business if a trade buyer cannot be found for the assets first.

It comes after DataRoom revealed in July last year that Macquarie Group had been hired for a sale of Mt Arthur and earlier that JPMorgan was involved, working on the divestment of Cerrejon.

However, attempts to find buyers for the mines at the right price has proved to be a challenging assignment at a time that financiers and institutional investors choose to side step assets associated with what is considered a non-environmentally friendly commodity.

BHP also confirmed in its results last Tuesday that a sale of its 50 per cent interest in the Gippsland Basin oil and gas development in Bass Strait was also on the agenda after a potential sale was first tipped in DataRoom last year and Goldman Sachs is also working on that part of the business, as first revealed by the column.

Goldman Sachs worked with BHP on the demerger of its South32 spin-off in 2015.

Shaw analysts estimate the Bass Strait interest to be $2.105bn.

A key factor with the coal mines assets is that the Mount Arthur Mine and Cerrejon mine were held in the former “Billiton” part of the business which came after a merger between Billiton and BHP and there are $600m of tax losses within the structure that could be wiped clear with the sales.

The expectation is that a demerger of the assets could take two years, which creates plenty of time for buyers to come forward for the assets, with the demerger being the last option.

Mount Arthur Coal Australia is the largest individual coal production site in the NSW Hunter Valley.

The mine is one of the largest surface mining operations in the world and produces high-quality thermal coal for the export market, with an annual capacity of 20 million tonnes.

Market analysts say the BHP Mitsui Coal assets, of which BHP owns 80 per cent, are being divested due to the fact that they do not produce premium coking coal and therefore do not fit well into BHP’s portfolio.

Logical buyers such as Coronado Global Resources and Peabody Energy are themselves facing funding headwinds.