BHP coal assets fall $1 billion in 2 years

 From IEEFA

Another global investor, the UK’s biggest public pension fund NEST, has withdrawn funds from BHP this week because the company is profiting “from digging coal”.

This follows BHP being put on a watch list by the Norwegian Sovereign Wealth Fund as a firm not adopting business strategies aligned with the Paris Agreement.

Pressured by investors to commit to global decarbonisation, BHP has put its last two loss-making Australian and Columbian thermal coal operations up for sale at a time when buyers are wary and global financial institutions are increasingly refusing to fund thermal coal.

Both Adani Australia and Yancoal made offers well below expectation for BHP’s Mt Arthur mine in Australia, signalling a dramatic change in market expectations and the realisation of stranded asset risk in the coal sector, and growing rehabilitation liabilities.

Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis (IEEFA) and author of a new report: Divestment vs Sterilisation: What to Do With BHP’s Stranded Coal Assets, says the deterioration of the thermal coal market coupled with increasing stranded asset and climate risk has put BHP into a tight spot.

“Investor pressure of leading companies to align with the Paris Agreement has encouraged BHP to put its last two thermal coal assets on the market, yet buyers are coming in under expectations,” says Buckley.

“Reading the rapidly deteriorating fundamentals of the gas market, BHP sold its U.S. shale gas for US$10.6bn in July 2018, taking an asset write-off of US$2.94bn in the process.

“Although it signalled a consideration of exit from the declining coal sector in 2018, BHP failed to divest its thermal coal mining operations quick enough.

“Any buyer of its thermal coal assets would be well aware of previous optimistic valuations suggesting a price tag could reach over $2bn just for Mt Arthur just 2-3 years ago.

“Today, the market could be well under $1bn, even if a strategic buyer with a strong balance sheet can be located. Net of a sinking fund for rehabilitation costs, this figure could be halved.”

Buckley says coupled with the massive but necessary cost of mine rehabilitation due at each mine’s end of life, BHP faces a choice between retaining, selling or spinning-off the mines.