Stronger thermal coal sales muddy the waters for BHP’s asset strategy

There’s no clear path for BHP to further reshape its energy profile based on performing assets following the release of its full-year results. This follows the move to merge BHP petroleum division with Woodside. The ‘Big Australian’ had a history of divesting underperforming assets said Phat Profits analyst David Lennox. The results released this week showed prices for thermal coal rose and metallurgical coal drop. Non Commital market It failed to present much of a case for potential buyers of those assets said Mr Lennox. “Look, at this stage, finding buyers hasn't been difficult, but unfortunately, it has to have been at the right price,” he said. “And I suspect that those prices, as we've seen quite an escalation in actual thermal coal prices of late, those valuations are probably not reflective of the current increases that we've seen in the coal prices. “And that's primarily because if you have a look a lot longer out, the view on thermal coal and energy coal is that, yes, they will grow as part of the whole energy pie. “But their rate of growth will probably be limited as we look to other sources, or as we look to other carbonless sources to replace what used to once be traditionally, especially thermal coal, their area in generating power.” Related: BHP and Woodside in energy mega-merger The demand for coal In line with the demand for more energy was not linear which complicated the sale of coal assets said Mr Lennox. “Of course, thermal coal still makes up a significant portion of the generation of electricity for the world. And with that demand increase, obviously we've seen an accompanying increase in the thermal coal price. “Again, however, it's that longer term view, and I'm not talking about three or four or five years, we're talking about probably 20 years out where we will see the demand for thermal coal, certainly by then, starting to slow significantly as the world looks to non-carbonless sources of energy supply.” The Caval Ridge operation Australia’s reputation as a high-quality coal producer and the advent of new technology was likely to play a role in demand for the locally mined product said Mr Lennox. “Certainly, Australia has got very high-quality coal,” he said. And from that perspective, it does not give off quite as much emissions as perhaps the dirtier coal that is supplied from other parts of the world. “So from that perspective, yes, Australia has got very good, clean thermal coal. “… and of course, we are now looking at other methods of storing carbon. “So, as these types of advances come into play, perhaps the outlook for thermal coal may not change as much as we were thinking, but certainly the seeds are now being processed. “But of course, in the short term, we need power now, and thermal coal is the quickest way and the easiest way we know to generate that power.” BHP’s coal business is represented by Queensland Coal which operates seven Bowen Basin Mines under the BHP Mitsubishi Alliance (BMA) and BHP Mitsui Coal (BMC). The operations include Goonyella Riverside, Broadmeadow, Daunia, Peak Downs, Saraji, Blackwater and Caval Ridge. BMA owns and operates the Hay Point Coal Terminal near Mackay. BHP also has the Mt Arthur open-cut energy mine in the Hunter Valley.

Stronger thermal coal sales muddy the waters for BHP’s asset strategy

Industry Queensland

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