BHP will slash the value of its Australian thermal coal assets by up to $1.25bn as it seeks to divest the business and focus on other commodities.
The world’s biggest miner announced in August plans to sell or spin off its New South Wales Energy Coal unit along with stakes in a Colombian coal mine and a joint venture producing another type of coal used in steel making.
Chief executive Mike Henry is looking to shift BHP’s portfolio more towards commodities such as copper and nickel that will be needed in ever greater quantities as the world shifts to cleaner forms or power and transport.
In a quarterly trading update on Wednesday, the Anglo Australian company said it would take a writedown of between $1.15bn and $1.25bn on NSWEC, slashing its value to between $250m and $350m.
BHP said the impairment reflected current market conditions for Australian thermal coal, which is used to produce electricity in power stations, as well as the Australian dollar, changes to the mine plan and an updated assessment of the likelihood of recovering tax losses.
BHP has cited those tax assets as one reason for unifying its complex corporate structure, which involves listed companies in Australia, where the miner has its headquarters, and in the UK.
The Australian coal industry has been rocked by China’s decision to ban imports because of a diplomatic row over the origins of the coronavirus pandemic.
Analysts say that it will be difficult for BHP to find a buyer for its unwanted coal assets because of growing investor concerns about fossil fuels. They see the company opting for a demerger. Mr Henry has said divesting the assets could take two years.
The impact of China’s blacklisting of Australia coal was evident in Wednesday’s update.
The price BHP received for thermal coal in the six months to December averaged $44.35 a tonne, down 24 per cent on the same period last year. The price for metallurgical coal was $97.61, down 31 per cent.
Metallurgical coal is a big business for BHP, which is the world’s leading supplier of the commodity.
On a brighter note BHP said its flagship iron ore unit shipped a record 145m tonnes of the raw material, which is also needed to make steel, in the second half of the year to meet surging demand from China.
China’s seemingly insatiable appetite for iron ore boosted the price BHP received to an average of $104 a tonne, up 33 per cent. That could pave the way for BHP to pay a big dividend when it announces half-year results in February.
“A special dividend at interim results is possible,” said Jefferies analyst Christopher LaFemina.