BHP Abandons Thermal Coal Exit as Investors and Prices Shift

David Stringer, Bloomberg News - June 16, 2022
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BHP Abandons Thermal Coal Exit as Investors and Prices Shift
BHP Abandons Thermal Coal Exit as Investors and Prices Shift

(Bloomberg) — BHP Group u-turned on its plan to exit from thermal coal, after surging prices made the assets more valuable and a shift in investor attitudes has reduced pressure on the company to stop mining the dirtiest fuel.

The world’s biggest resources companies and their shareholders have been grappling for years with the question of whether to get out of the fossil-fuel business. BHP already sold out of a giant coal mine in Colombia and its biggest rival, Rio Tinto Group, completely exited coal years ago, while top shipper Glencore Plc says it will hold onto its mines until they run out of coal sometime before 2050.

Investors Pushed Mining Giants to Quit Coal. Now It’s Backfiring

Now investors are growing increasingly wary of the unintended consequences of divestment, especially as spiking energy prices make it a lucrative business for new owners — meaning more coal could end up being produced for longer. Anglo American Plc spun off its South African coal mines last year into a new company that immediately announced it planned to increase production.

As a result, pressure from ESG-focused investors to quickly sell coal assets has been replaced by calls on major commodity producers to focus on the responsible — and accelerated — closure of the operations.

“Use of asset divestment as a tool to lower carbon footprints and avoid responsible closure is not acceptable,” Harriet Kater, climate lead for Australia at the Australasian Centre for Corporate Responsibility, a shareholder activist group, said in a statement.

In fact, BHP will seek to extend the operation’s life until the end of the decade, from the current permitting through 2026. The company said it will work with the local community over the next eight years on a closure plan.

While the company was still looking to sell the mine, it surprised investors by applying to extend mining until 2045, which prompted concerns that a potential buyer could keep the operation open until then.

BHP’s move to exit the business has also been complicated by a price surge that saw Asia’s benchmark Newcastle coal advance to a record high last month. BHP sold its stake in the Cerrejon coal mine to Glencore before prices spiked, which given the structure of the deal meant Glencore got the asset almost for free.

Glencore Gets Rich on Coal, But Questions Persist Over Exit Plan

Glencore itself is on course to make record profits from its coal business this year and could overtake Rio Tinto to become the world’s second most profitable miner as a result. The company has been forced to revisit the debate over its coal strategy this year as some investors push for more detail about the plan to wind down coal mines. However, the plan still received support from 76% of investors in a vote in April.

BHP has been seeking to shed fossil fuel assets as Chief Executive Office Mike Henry focuses the company around its top-earning iron ore unit, and on metals tied to the energy transition, including copper and nickel.

A sprawling oil and gas unit was divested to Woodside Energy Group in a deal completed this month, while the firm also last year sold a package of Australian metallurgical coal assets.

BHP has a provision of about $700 million for the closure of Mt Arthur and expects rehabilitation work to last about 10 to 15 years after mining ends, the company said in its statement.