Mining giant BHP now considers its Mt Arthur thermal coal mine in the Hunter Valley a liability, after slashing hundreds of millions of dollars from its value.
- The Mt Arthur project was worth $2 billion just a few years ago
- The value has now plummeted to negative $200 million
- Analysts say it points to a bleak outlook for thermal coal
The mine, which is the largest operating coal mine in New South Wales, was worth $2 billion just a few years ago, but that was cut by more than $1 billion in January.
In the latest write-down, the company now puts the mine’s value at negative $200 million, which chief financial officer David Lamont said reflected “rehab and restoration” commitments.
As it looks to divest thermal coal assets globally, BHP is halfway through a two-year process to find a buyer for Mt Arthur.
Speaking from London, BHP chief executive Mike Henry was questioned on whether the company had left it too late to sell the mine.
“I would just say we are where we are and so I don’t really want to get into revisiting the past because there were obviously factors that we considered at that time,” he said.
“We did give ourselves two years at the time that we announced this one year ago, so there was clear recognition that there was a process to be undertaken and all options remain open for consideration.”
The mine employs 2,000 people, but Mr Henry did not address whether the company would consider decommissioning it if a buyer could not be found.
BHP sees thermal coal ‘in decline’, says analyst
Resource analyst with Wood Mackenzie Rory Simington said the asset write-down showed BHP was predicting an uncertain future for thermal coal.
“BHP have made a decision to exit thermal coal and I think they would be expecting to see lower coal prices going forward as a result of lower demand,” Mr Simington said.
“Over the past few years, BHP’s costs at Mt Arthur have increased quite substantially. That’s been another driver.”
Fleeing fossil fuels
Two months ago, the company sold its stake in Colombia’s Cerrejon coal mine to Glencore.
Mr Simington believed it was “definitely still possible” for BHP to sell the Mt Arthur project, but a “smaller and smaller pool of investors” would be in the market.
“Thermal coal is a relatively small part of their portfolio and it doesn’t cost them all that much to exit it in terms of the overall value of the company,” he said.
“We still have a positive valuation for Mt Arthur and we think that’s probably because the coal prices that we’re using for that valuation are higher than what BHP are using.”
The write-down came on the same day as the company announced a merger with gas producer Woodside Petroleum worth $20 billion.
The company has been under increasing pressure from investors to divest its fossil fuel interests.