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BHP cuts Mount Arthur coalmine valuation by $1.5bn after thermal coal price plunges

Ben Butler
·3-min read
<span>Photograph: Ian Waldie/Getty Images</span>
Photograph: Ian Waldie/Getty Images

BHP will slash its valuation of its Mount Arthur coalmine in New South Wales by at least $1.5bn after a dramatic fall in the price of thermal coal, which is burned to produce electricity.

The move will wipe out most of the book value of the Hunter Valley mine, leaving it worth between $325m and $455m, BHP said in a quarterly update on Wednesday.

BHP said it was selling thermal coal for US$44.35 a tonne in the second half of last year, down 24% on the same period in the previous year.

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This is well below the cost of mining the ore of between US$55 and US$59 a tonne, estimated by the mining group in its most recent annual report.

BHP has been trying to reduce costs at the mine and put it up for sale amid a ban on Australian coal exports to China and a gloomy long-term outlook for the entire sector.

On Wednesday it said it would cut the book value of the mine by between US$1.15bn (about $1.5bn) and US$1.25bn (about $1.6bn), leaving it worth between US$250m ($325m) and US$350m ($455m).

The company said the writedown “reflects current market conditions for Australian thermal coal, the strengthening Australian dollar, changes to the mine plan and updated assessment of the likelihood of recovering tax losses”.

Mining at Mount Arthur has also become more difficult because the coal seam descends quickly into the earth, requiring more soil to be removed above it. BHP has responded by trying to mine only the highest quality parts of the seam, as well as trying to reduce production costs.

BHP will release a final writedown figure in its half year results, due next month.

The company announced Mount Arthur was for sale in August last year as part of a plan to get out of thermal coal production. It expects the sale process to take up to two years.

In addition to the Mount Arthur mine, BHP owns a third of the Cerrejón mine in Columbia and 80% of BHP Mitsui Coal, a joint venture with Mitsui that mines coking and thermal coal in Queensland.

Under pressure from investors, the company in September pledged to cut its greenhouse gas emissions by 30% over the next decade, but stopped short of committing to getting out of coal and gas.

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It intends to retain mines producing metallurgical coal, which is used in steel-making, and keep its oil and gas fields.

BHP predicts demand for steel will almost double if the world is able to keep global heating to below 1.5C.

It produced 6% more iron ore in the second half of last year than in the same period the previous year and the price rocketed by a third over the same time period, driven in part by a construction boom in China as the country recovers from a coronavirus-inspired economic slump.

Over the same period thermal coal production plummeted by 30% due to reduced capacity at the port in Newcastle and a 91-day strike at Cerrejón, BHP said.