Feb 17, 2021

Coal down but not out in BHP half-year wrap

Coal down but not out in BHP half-year wrap

BHP’s coal operations saw a $US1.1 billion ($AU1.4 billion) reversal in fortunes in the half-year result released this week, to make a $US201 million ($AU260 million) loss.

The hit was mainly down to an underlying loss of $US180 million (EBITDA) from NSW thermal coal, while Queensland coal operations made an underlying EBITDA in the black at $US59 million.

BHP reported good progress in the implementation of autonomous haulage operations in the Bowen Basin, with first trucks at the Daunia coal mine beginning operations last month.

At the Goonyella Riverside mine, the first coal site to implement autonomous haul trucks, the deployment of 86 autonomous trucks continues in line with the plan.

BHP expects the roll-lout at both sites to be completed early in the 2022 calendar year, on schedule and budget.

During the half-year, BHP’s signed a renewable power purchasing agreement to meet half of its electricity needs across its Queensland Coal mines from low emissions sources, including solar and wind.

Another company highlight was a commitment to the training and funding for 3,500 new Australian apprenticeship and training positions over the next five years.

The BHP FutureFit Academy, launched in May 2020, currently has 438 apprentices and maintenance associates enrolled across the two locations at Mackay and Perth.

Graduates of the FutureFit Academy will be deployed to an Operations Services team from the 2021 calendar year.

Stronger second-half expected

The company reported that the costs of producing coal at its Queensland operations increased by 20 per cent to US$85 per tonne in the half year to December 31.

This was attributed to the impact of a six per cent stronger Australian dollar, lower volumes following significant wet weather during the December 2020 quarter and planned wash plant maintenance.

It is looking forward to a stronger second half performance in the Queensland coal business following completion of planned maintenance in the first half.

The company warned this was subject to any potential impacts on volumes from restrictions on coal imports into China and further significant wet weather during the remainder of the 2021 financial year.

“In the medium term, we expect to lower our unit costs to between $US58 and $US66 per tonne (based on an exchange rate of AUD/USD 0.70) reflecting higher volumes (with focus on higher quality coals and subject to market conditions), lower strip ratios, optimised maintenance strategies and continued efficiency improvements,” the company stated.

Long-term fundamentals ‘attractive’

In its commodities outlook, BHP noted that the metallurgical coal industry faced a difficult and uncertain period ahead.

“Long term, we believe that a wholesale shift away from blast furnace steel making, which depends on metallurgical coal, is still decades in the future,” it said.

Demand for seaborne Hard Coking Coals (HCC) was expected to grow alongside the growth of the steel industry in HCC importing countries such as India.

“There is a developing mismatch between the expected evolution of customer demand and the cost-competitive growth options available to producers, which are skewed towards lower quality coals,” the company said.

“As a result, we view the medium to long-term fundamentals for higher quality metallurgical coals as attractive.”