BHP Group will broaden plans to exit coal operations and review opportunities to shed aging oil and gas assets under new CEO Mike Henry’s more urgent push to reshape the world’s top miner’s portfolio for a low-emissions future.
The producer aims to sell, or spinoff, its 80% share in the BHP Mitsui Coal joint venture, which owns two coking coal operations in Australia, along with exiting thermal coal mines and some oil and gas operations, the company said Tuesday when reporting annual profits held steady at $9.1 billion, cushioned from virus impacts by higher iron ore prices.
Henry, installed as chief executive officer in January, is focusing BHP on supplying higher-quality iron ore and coking coal to capture China’s shift to prioritize premium raw materials for its steel sector. At the same time, he’s laying the ground for a longer-term transition to favor growth in copper and nickel to meet expected rising demand from renewable energy and the electrification of transport.
“The world is rapidly changing with decarbonization of energy sources, population growth and the drive for higher living standards in the developing world,” the company said in a statement. “It will require us to continue to be active portfolio managers.”
Iron Profit Machine
Even as it consider future plans, iron ore continues to account for most of BHP’s revenue.
BHP has been considering plans to offload its Australian thermal coal mine and one-third stake in the Cerrejon operation in Colombia for more than a year and has rejected some early offers, people familiar with the matter said last month. A process to exit those mines, and the coking coal venture with Mitsui & Co., will now advance options for trade sales, or a demerger into a separate listed entity, BHP said.
The company confirmed it will also plan to sell its 50% stake in the Bass Strait oil and gas joint venture with Exxon Mobil Corp. in southeastern Australia. Exxon said in September it also plans to exit. “We will seek to divest oil and gas assets that are mature or which are likely to realize greater value under different ownership,” Henry said.
Henry said BHP is motivated by commercial decisions in pruning back its fossil fuel assets, though the producer has faced pressure from investors and is also preparing to next month set out more ambitious targets to reduce greenhouse gas emissions.
Lower thermal coal prices mean around two-thirds of the world’s seaborne supply is losing money, while there’s ongoing uncertainty over China’s policy on energy coal imports.
BHP’s plan to exit “its entire thermal coal business seems relatively poorly timed, but from an ESG perspective we understand the desire to make this decision,” RBC Capital Markets analyst Tyler Broda said in a note. “We expect this will likely take two years or longer to either divest or demerge the business.”
BHP shares were 0.3% lower as of 12:58pm in Sydney trading as rival Rio Tinto Group advanced 1%. Investors may be disappointed with a final dividend — of 55 cents a share — that was below analysts’ forecasts, reflecting a conservative approach amid a weak global economy, RBC’s Broda said.
A decision on adding potash production through the initial development of the Jansen project in Canada — seen as a way of diversifying BHP’s earnings beyond industrial raw materials — has been delayed until mid-2021, BHP said. The project, which may cost as much as $5.7 billion, could benefit from improving supply and demand dynamics from the late 2020s or early 2030s, the company said.
To support plans to reshape BHP’s portfolio, Henry promoted Johan van Jaarsveld as Chief Development Officer. In other appointments, Laura Tyler was moved into a new role as Chief Technical Officer and Ragnar Udd will become President, Minerals Americas as Danny Malchuk — a rival to Henry for the CEO post — leaves the company.
The moves complete a reshuffle of the executive team begun earlier this year when BHP announced David Lamont, an executive at Australian drug-maker CSL Ltd., would become Chief Financial Officer from December.