WHC Whitehaven Coal Limited

By Rhiannon Hoyle

Mining giant BHP Group and Japan's Mitsubishi have agreed to sell two jointly owned steelmaking coal mines in Australia to Whitehaven Coal for up to $4.1 billion in cash.

The world's biggest miner by market value said earlier this year the joint venture was seeking a buyer for its Blackwater and Daunia mines in the Bowen Basin of Australia's coal-rich Queensland state. The BHP Mitsubishi Alliance, Australia's largest producer and exporter of metallurgical coal, is narrowing its focus on high-quality coal it expects steel mills will increasingly buy to help curb their carbon emissions.

The deal announced Wednesday includes $2.1 billion cash on completion plus another $1.1 billion over the following three years. There's also the potential for up to $900 million in price-linked payments over three years if coal sales are above agreed price thresholds.

Whitehaven will take on all current and future environmental liabilities and rehabilitation obligations when the sale is completed, BHP said.

The Blackwater and Daunia mines produce millions of metric tons each year of mostly metallurgical coal for steel that is shipped mainly to buyers across Asia. The Blackwater mine, opened in 1967, is one of the longest coal mines in the Southern Hemisphere.

The mines produce lower-quality coal than some of the joint venture's other operations and BHP previously said those two mines would struggle to compete for future investment. "What we are doing here is further concentrating our portfolio on the best-of-the-best assets," BHP Chief Executive Mike Henry said in February.

Whitehaven said the deal will be transformational for the Sydney-based coal company, helping to increase exposure to steelmaking coal versus coal used to generate electricity. It said it is considering the sale of a minority interest to global steel producers that would help pay for the deal.

"Daunia and Blackwater produce much-needed metallurgical coal that is in high demand across Asia," said Whitehaven Chief Executive Paul Flynn.

BHP last year sold its controlling interest in two other mines to Stanmore Resources in a roughly $1.35 billion deal. It also sold a minority interest in a Colombian mine to Swiss commodities giant Glencore.

BHP sought to sell its last thermal-coal mine, the Mt. Arthur coal operation in Australia, but failed to secure a buyer. Last year, BHP said it would instead keep mining the pit for several years before closing it and beginning rehabilitation work.

The world's top miner has been pivoting toward commodities it expects to enjoy higher demand amid a global energy transition, especially industrial metals copper and nickel, and fertilizer ingredient potash.

BHP bought Australian copper miner OZ Minerals in May in what was its biggest acquisition in more than a decade. Before that, it struck a deal with Australia's Woodside Energy to offload its global petroleum business.

Still, coal remains an important money-spinner for the mining giant. BHP's coal interests contributed 18% of the group's underlying Ebitda in the year through June, with a margin of 46%.

BHP says it believes high-quality metallurgical coal will be needed to fuel blast furnaces in the steel industry for decades to come, underpinned by growth in steelmaking in countries such as India, which--unlike China--relies on imports of steelmaking coal.

"In line with our long-term strategy, we will continue to develop our high-quality metallurgical coal assets in Queensland, which are sought after by global steelmakers and needed to support the energy transition," BHP said in a statement on Wednesday.

BHP said profits from the sale will go toward reducing net debt. The deal is expected to be completed in the quarter ended June 30, 2024, it said.

Earlier Wednesday, BHP reported a 16% fall in first-quarter metallurgical coal output compared with the same period a year earlier. It said that was in part due to planned plant maintenance.

The miner also reported lower iron-ore production but higher copper output, and said it is on track to meet fiscal-year production and cost estimates set for all its operations.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

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October 18, 2023 00:09 ET (04:09 GMT)

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