China ban hits BHP coal arm as profits slide

BHP’s coal operations booked a $US1.1bn ($1.4bn) reversal in its half-year result as the pandemic and China’s coal bans bit deep into the division’s usually reliable profits.

A truck at BHPs Caval Ridge mine.

BHP’s coal operations booked a $US1.1bn ($1.4bn) reversal in its half-year result as the pandemic and China’s coal bans bit deep into the division’s usually reliable profits.

Despite hefty profits generated by BHP’s Pilbara iron ore operations, the company’s half-year ­results underscored the impact of the pandemic and China’s coal bans on the company’s coal division, dragging it down to a $US601m loss for the half-year, before interest and tax.

All of BHP’s coal arms lost money in the six months to the end of December, with its Queensland metallurgical coal operations booking a $US270m loss before interest and tax, after revenue plunged almost $US1bn for the half to $US1.86bn. BHP’s Queensland coal operations booked a $US728m profit in the six months to the end of 2019.

Its Mount Arthur thermal coal mine in NSW, which BHP is preparing to sell, lost $US208m and its share of the Cerrejon thermal coal mine in Colombia lost $US52m.

BHP slashed $US1.2bn from the value of Mount Arthur, after tax, citing the poor outlook for Australian energy coal, the difficulty of recovering tax losses at the out-of-favour mine before it is sold, and “changes to the mine plan” — effectively its decision to high-grade the operation to maximise profits before it is offloaded.

BHP also cut the book value of Cerrejon by $US380m, citing the negative outlook for coal.

The bulk of the coal losses can be attributed to China’s coal bans, however, and chief executive Mike Henry said on Tuesday he did not expect China’s stance on Australian coal to change materially in the near future.

“The safe business planning assumption for BHP is that (the ban) is going to continue for some time,” he said. “We are certainly not banking on any near-term ­resetting of that policy; we are planning for it to be in (place) for a period of time.

“But thanks to the great work on the part of the marketing team and the strong relationships we have, we have been able to move all of our production.”

Coal prices have recovered over the past few months as markets shifted around to suit the Chinese bans, with Australian miners selling more to Japan, India and Europe, as Russian, US and Mongolian coal replaced Australian product in China.

But Mr Henry said he did not expect the coal price rally to last long, and that BHP expected prices to fall over the rest of the year.

The BHP boss said the company was still considering whether it would sell Mount Arthur and some of its lower-quality coking coal mines in Queensland, and the option of demerging the assets into a new listed company had not been ruled out.

However, Mr Henry said BHP still saw a strong long-term outlook for its best Queensland metallurgical coal mines.

“Long term, we believe that a wholesale shift away from blast furnace steel making, which depends on metallurgical coal, is still decades in the future,” he said.

“There is a mismatch between the expected evolution of customer demand and the cost-competitive growth options available to producers. As a result, we view the medium to long-term fundamentals for higher quality metallurgical coals as attractive.”