BHP to retain Mount Arthur after sale fail

BHP has announced that its high-quality Mount Arthur thermal coal mine cannot be sold and will be run (NSW government approval permitting) until 2030 and then closed.

The world’s biggest miner confirmed on Thursday that a long process to try and find buyers for the mine had failed, that it would now be seeking consent from the NSW government to continue mining past the 2026 cut-off date and then close it by the end of the 2030 financial year.

BHP shares rose 1.4% to $44.54 at one stage before easing to end Thursday at $44.01, up a quarter of a per cent.

The move by BHP comes as pressures grow on thermal coal mining and coal fired electricity generation – at least two major NSW stations – Liddell and Eraring are facing earlier than expected closures and the national electricity market is in a state of confusion due to higher prices, lower supplies, cold weather (it’s winter) and a sharp rise in demand as a result.

BHP said it didn’t get any ‘viable’ offers for Mount Arthur which is NSW’s biggest mine.

The decision follows BHP’s review of its lower grade metallurgical and energy coal assets that was announced in August 2020 and has also resulted in the divestment of its interests in Cerrejó (Colombia) and Queensland’s BHP Mitsui Coal (BMC) in January and May 2022 respectively.

The decision was not unexpected because BHP has struggled to find a buyer or buyers for the huge mine which is located near Muswellbrook in the Upper Hunter, as evidenced by its lack of reassuring words about potential interest in its quarterly, interim and full year reports and accounts.

BHP’s decision will put pressure on jobs (2,000 people are employed at Mount Arthur), ease pressure on the Hunter rail and port networks and eventually see a reduction in dust and other pollution in the area of the huge open cut mine.

In Thursday’s statement, BHP made it clear it doesn’t want the mine which produces roughly 17 million tonnes of thermal coal worth around half a billion US dollars a year in revenue at current prices of around $US300 a tonne.

“A trade sale process for NSWEC was conducted however the process did not result in a viable offer. Assessment of the resource economics, geotechnical profile and future investment requirements determined that continued mining in the near term and moving to a closure in 2030 provides the optimal financial outcome when compared to alternate options.

“Continuation of mining to the end of FY2030 will afford eight years to work with our people, state and federal governments and local communities in the Hunter Valley region on a transition approach that supports long-term community sustainability.

“Plans to continue operating NSWEC to FY2030 are subject to obtaining relevant approvals to enable mining beyond the current consent, which only provides approval for mining until 2026.”

So it is now up to the NSW government to grant the extension of the mining consents to 2030 to allow BHP to continue the orderly running down of the business, or to end it ASAP in four years’ time. The state of NSW will also see a fall in income from royalties and other charges.

BHP said it had already started work on the closure option and had already provided $US700 million to help pay for the rehabilitation of the open cut mining site in the upper Hunter Valley.

“Work is underway to prepare the application for the relevant approvals with the New South Wales and Australian governments to support mining until 2030. This will also include plans for closure of the asset, including rehabilitation and determining the most appropriate post-mining land use. It is expected that continued work on rehabilitation will take 10 to 15 years following the cessation of mining.

It’s the second announcement concerning the closure of coal assets this week. The WA government revealed that its Collie power stations south of Perth will be closed by 2030. Collie Power Station will close in late-2027 and Muja D in late-2029. The coal mines at Collie will close as part of the process.

The WA government says it will spend more than $600 million on the transition and other measures, including helping the more than 1,200 people employed at the stations and mines.

BHP’s announcement also recalls another asset that it tried to sell half a dozen years ago – its NickelWest operations in WA.

It couldn’t find a buyer either and decided to keep them and then invest to tart up the mines, smelter and refinery to see any buyers might emerge. But suddenly the renewables boom emerged and nickel became a tier one asset so far as BHP is concerned (ranking with its WA iron ore operation) and is now at the forefront of the company pitching itself as a green machine for the renewable future.

BHP is even supplying high grade nickel sulphates to the likes of Tesla for batteries from Kwinana – there’s no such option for thermal coal.