BHP Group
BHP
recently announced that it has not received a viable offer for its New South Wales Energy Coal (“NSWEC”) unit and plans to retain it and continue mining up to the end of fiscal 2030. With the mining consent for the operation to expire in 2026, BHP is currently working toward acquiring the relevant approvals for the same.
For the past two years, BHP has been exiting some of its lower-grade metallurgical coal and energy coal assets as it seeks to reduce emissions and streamline its portfolio. In sync with this, in January 2022, BHP concluded the sale of its 33.3% stake in the Cerrejón joint venture in Colombia for $294 million in cash. In May, the company divested its 80% interest in BHP Mitsui Coal Pty Ltd, an operated metallurgical coal joint venture in Queensland.
A trade sale process for NSWEC had also been initiated but the company failed to find a buyer. Per the company’s assessment of resource economics, geotechnical profile and future investment requirements, continuing operating the mine seems to be more financially viable than divesting the asset.
BHP is currently working on the application for relevant approvals with the New South Wales and Australian governments to support mining at NSWEC, which includes the Mt Arthur coal mine near Muswellbrook, until 2030. This will also include plans for the closure of the asset, including rehabilitation and determining the most appropriate use of the land post-mining. Post-closing, rehabilitation is expected to take around 10 to 15 years. The company has earmarked $700 million for the closure of the mine.
In the nine-month period ended Mar 31, 2022, the NSWEC unit produced 9.8 million tons (Mt) of thermal coal. The guidance for energy coal production for fiscal 2022 is 13 to 15 Mt. The NSWEC unit’s costs are predicted between $76 per ton and $81 per ton, higher than the $62-$70 per ton range expected earlier. The revision reflects a targeted increase in the proportion of higher-quality coal to capture more value from record-high prices for higher-quality thermal coal. Higher-quality products now make up almost 90% of sales compared with approximately 65% sales earlier.
This move will help the company capitalize on the recent increase in coal prices, which has been supported by a tightening market following Russia’s invasion of Ukraine and unprecedented economic sanctions. The EU’s ban on oil and coal imports from Russia has thrown the global energy market into chaos. Meanwhile, iron ore prices have tumbled to $135 per ton on the fear of weak demand in China, the world’s top steel producer on renewed COVID-19 outbreaks in China.
Price Performance
BHP shares have fallen 14.6% over the past year compared with the
industr
y’s decline of 11.1%.
Image Source: Zacks Investment Research
Zacks Rank & Stocks to Consider
BHP currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Some better-ranked stocks in the basic materials space are
Allegheny Technologies Inc.
ATI
,
Cabot Corporation
CBT
and
Nutrien Ltd.
NTR
.
Allegheny has a projected earnings growth rate of 1,030.8% for the current year. The Zacks Consensus Estimate for Allegheny’s current-year earnings has been revised 40% upward in the past 60 days.
Allegheny has a trailing four-quarter earnings surprise of roughly 128.9%, on average. ATI has rallied around 16% in a year and currently sports a Zacks Rank #1.
Cabot, currently sporting a Zacks Rank #1, has an expected earnings growth rate of 29.5% for the current year. The Zacks Consensus Estimate for Cabot’s earnings for the current year has been revised 12.1% upward in the past 60 days.
CBT has a trailing four-quarter earnings surprise of 16.2%, on average. Cabot has rallied around 6% in a year.
Nutrien has a projected earnings growth rate of 174.6% for the current year. The Zacks Consensus Estimate for Nutrien’s current-year earnings has been revised 30.7% upward in the past 60 days.
Nutrien has a trailing four-quarter earnings surprise of 5.8%, on average. NTR has rallied 48.5% in a year. The company sports a Zacks Rank #1.
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