Macquarie, JPMorgan explore BHP thermal coal sell-off

Market focus remains on BHP’s residual thermal coal businesses with investment banks Macquarie and JPMorgan doing work on exploring a potential exit of the business.

China’s Yancoal and Anglo American are thought to be open to an expansion. Picture: Liam Kidston.

A trade sale remains possible with specialised buyers, given thermal remains on the nose among big investors, although China’s Yancoal and Anglo American are thought to be open for an expansion. Glencore’s appetite for more thermal coal appears to be limited after it declared a self-imposed production cap on energy coal.

Under consideration is believed to be its Mount Arthur Coal business in NSW and the 33 per cent interest in its long-life Colombian mine Cerrejon. Remember BHP’s full-year results are scheduled for August 20.

Momentum inside BHP seems to be for an exit, but at an acceptable price.

Last month BHP boss Andrew Mackenzie made a landmark speech on climate change where he said the mining major would extend its climate change policy to include monitoring and trying to influence the carbon emissions of its customers, and would tie its executive pay packets to the success of reducing greenhouse gas emissions.

While thermal barely shifts the dial in terms of BHP’s earnings it has been a bugbear among some investors.

Activist investor Elliott Management in 2017 lobbied for a sale of Mount Arthur, as it also urged BHP to divest its US shale assets, which it has since sold.

Cerrejon is one third-owned by BHP, Anglo American and Glencore, which all no doubt have pre-emptive rights to buy out the other shareholders.

The mine is one of the largest surface mining operations in the world and produces high-quality thermal coal for the export market, moving 550 million tonnes of material annually.

With Glencore, Yancoal made a $US3.5bn ($5.15bn) purchase of Rio Tinto’s Coal & Allied thermal coal operations in the Hunter Valley. Glencore could also be a buyer after it last year bought Rio’s Hail Creek coking coal mine in Queensland for $US1.7bn.

Leading into BHP’s full year results last month, analysts expect the miner like its rival Rio Tinto has benefited from both a buoyant iron ore price and a depreciating Australian dollar.

Separately, Rio Tinto held a series of sell-side analyst roundtables in London and Sydney with CFO Jakob Stausholm and the chief of iron ore Chris Salisbury, focused on the Pilbara and Mongolia.

 

Source: The Australian Business Review, 09 August 2019