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BHP to cut book value of money-losing Australian thermal coal mine by up to US$1.25 billion

January 20, 2021

The Guardian:

BHP will slash its valuation of its Mount Arthur coalmine in New South Wales by at least $1.5bn after a dramatic fall in the price of thermal coal, which is burned to produce electricity. The move will wipe out most of the book value of the Hunter Valley mine, leaving it worth between $325m and $455m, BHP said in a quarterly update on Wednesday.

BHP said it was selling thermal coal for US$44.35 a tonne in the second half of last year, down 24% on the same period in the previous year. This is well below the cost of mining the ore of between US$55 and US$59 a tonne, estimated by the mining group in its most recent annual report.

BHP has been trying to reduce costs at the mine and put it up for sale amid a ban on Australian coal exports to China and a gloomy long-term outlook for the entire sector.

On Wednesday it said it would cut the book value of the mine by between US$1.15bn (about $1.5bn) and US$1.25bn (about $1.6bn), leaving it worth between US$250m ($325m) and US$350m ($455m).

The company said the writedown “reflects current market conditions for Australian thermal coal, the strengthening Australian dollar, changes to the mine plan and updated assessment of the likelihood of recovering tax losses”.

The company announced Mount Arthur was for sale in August last year as part of a plan to get out of thermal coal production. It expects the sale process to take up to two years. In addition to the Mount Arthur mine, BHP owns a third of the Cerrejón mine in Columbia and 80% of BHP Mitsui Coal, a joint venture with Mitsui that mines coking and thermal coal in Queensland.

[Ben Butler]

More: BHP cuts Mount Arthur coalmine valuation by $1.5bn after thermal coal price plunges

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