BHP’s exit from thermal coal would be gift wrapped for COP26

BHP’s thermal coal exit is a deal that has been pregnant for some time, with the market expecting a short-term delivery. The company’s CEO Mike Henry declared the miner’s position last year – that its package of assets would move to a lower carbon content in the future with no room for thermal coal in the portfolio.

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The first part of this divestment of coal happened in June, when BHP relieved its stake in a Colombian project, Cerrejón, for $ 387 million. The second part will be the soon-to-be-completed sale of Mt Arthur in NSW. None of the sales move the dial on BHP’s earnings, but send a meaningful message

The Mt Arthur asset was written down in BHP’s books twice this year, and thanks to the cost of rehabilitation, it is booked as a liability on the balance sheet.

In recent months, valuations have been complicated by an increase in the price of thermal coal, which is used to produce electricity. This has been due to a post-COVID increase in the international economy and the resulting shortage of supply.

The rise in prices has expressed views that Australia is moving too fast with the transition to renewable energy.

However, it is unlikely that it will deter BHP from getting a thermal coal deal over the line soon. The desire to reposition oneself as a more climate-responsible corporate citizen and the understanding that long-term structural forces will reduce the value of coal will offset the current clover moment of coal.

As Henry told BHP investors last month, the decision to leave thermal coal, “was simply a carbon-neutral assessment of how these commodities fit into the BHP portfolio, how we saw long-term value in their ability to compete for capital in BHP. portfolio and like many of the other decisions we have made, we decided that these assets were probably best owned by someone else. “

There is a perception that companies like BHP, with responsible goals of reducing emissions, should control the closure of higher-emitting assets instead of selling them. But this is not the route BHP has chosen – with Glencore picking up BHP’s stake in Cerrejón and Peabody being considered the most likely buyer of Mt Arthur.

The real tectonic shift in BHP’s fossil fuel portfolio was the recently announced sale of its oil and gas assets to Woodside Petroleum.

Mt Arthur is one of Australia's largest thermal coal mines.

Mt Arthur is one of Australia’s largest thermal coal mines.Credit:Janie Barrett

While large resource companies, and at least the iron ore producers, do not want to characterize their race for green as a competition, there is a clear expression of a line-up to the various initiatives and goals that have been announced so far.

Rio has pledged $ 10 billion to decarbonize investment by the end of the decade and half of its direct carbon footprint by 2030 – to overtake BHP’s CO2 reduction targets but remain behind Fortescue’s more aggressive targets.

After all, it will involve significant investment in technology – especially in their quest to ultimately move towards clean energy sources for their customers’ steel production. And it all plays out well for the Australian Government, which can sit back and praise the power of market forces as they sit in the back seat to lower emissions.

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