BHP winding down thermal coal mine after failing to find a buyer

BHP has pulled out of attempts to sell one of Australia’s largest thermal coal mines, choosing to run down the asset over the next eight years as it works to transition away from mining fossil fuels.

The coal mine, located at Mount Arthur in the Hunter Valley region north of Sydney, was put up for sale in 2020. BHP had planned to extend the life of the mine, which supplies power stations in Japan and Korea, to 2045 from 2026, when its original licence ends.

It will now close the site in 2030 after failing to find a buyer. The decision to keep Mount Arthur running comes as prices for high-grade Australian thermal coal trade close to record levels, at around $390 a tonne, according to energy data provider Argus Media.

Europe’s decision to ban coal imports from Russia, which will come into force in August, has further tightened the market. An almost total absence of investment in new markets has resulted in supply lagging demand as big economies in Asia lift their pandemic restrictions.

Coal mining has been the lifeblood of the economy in the Mount Arthur region since the 1960s, and BHP turned the site into one of the country’s largest opencast mines 20 years ago. Around 2,000 people work there and the decision to extend its life beyond 2026 will require government approval.

Edgar Basto, head of BHP’s Australian minerals unit, said: “Seeking approval to continue mining until 2030 avoids closure in 2026 and enables BHP to balance the value and risk of those considerations and our commitments to our people and local communities.”

Coal mining has dominated the political landscape as a result of Australia’s economic dependence on fossil fuel exports. The country is also gripped by an energy crisis with the state government of New South Wales warning of potential blackouts due to generator outages.

It is the second time that BHP has played a significant role in reshaping the region’s economy after it pulled out of its large steel business in Newcastle in the late 1990s. 

Mount Arthur was earmarked for disposal as part of the reshaping of the mining company. BHP sold its stake in a Colombian coal mine to Glencore — which also owns coal mines in the Hunter Valley — last year and has merged its oil assets with Woodside into a separately listed company.

The Mount Arthur mine had accrued heavy losses in recent years but a sharp rise in the thermal coal price has turned around the operation’s finances. However, the mine is not expected to remain profitable beyond 2030 even if prices stay high.

Saul Kavonic, an analyst with Credit Suisse, said it was no surprise BHP struggled to find a buyer given the capital expenditure and government approvals required, as well as the high cost of decommissioning the mine, anticipated to be around $700mn.

Kavonic said BHP, which has said it will end its thermal coal operations, had previously favoured fast divestment of coal assets. But higher coal prices following Russia’s invasion of Ukraine and changing attitudes towards environmental, social and governance (ESG) issues had prompted BHP to shift its approach.

“Only 12 or 24 months ago, equity markets were really shunning fossil fuel exporters, but there’s now been a shift where some in equity markets say there is an ESG case for managing your assets down rather than just flicking the problem to someone else who might have less ESG scruples,” Kavonic said.

Additional reporting by Neil Hume in London