Why has the BHP share price firmed up today?

Posted: 8 November 2021 1:20 pm
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Shares in mining giant BHP have slipped 30% over the last 6 months.

Shares in the world’s biggest miner BHP (ASX: BHP) have not had a great run over the past few months. So investors were pleasantly surprised to see the stock bump up 1.5% to $36.62 in early trading on Monday.

Why has the BHP stock price lifted?

BHP on Monday announced it had found a buyer for its 80% stake in the BHP Mitsui Coal (BMC) joint venture in Queensland, in a move that continues its retreat from fossil fuels.

Under the deal, ASX-listed Stanmore Resources (ASX: SMR) will pay BHP US$1.2 billion in cash for its stake in the Poitrel and South Walker Creek open-cut metallurgical coal mines in Queensland’s Bowen Basin.

The 2 mines produce 10 million tonnes of coking coal annually, a key ingredient in the manufacture of steel from iron ore. BHP said it expects the deal to settle by the middle of 2022.

The deal comes as part of BHP’s ongoing efforts to decarbonise its operations, leaving it with higher quality coking coal assets it operates through the BHP Mitsubishi joint venture in Queensland. The company has also been looking for a buyer for its last remaining thermal coal mine, at Mt Arthur in New South Wales, for quite some time.

“As the world decarbonises, BHP is sharpening its focus on producing higher-quality metallurgical coal sought after by global steel-makers to help increase efficiency and lower emissions,” BHP head of Australian mining Edgar Basto said in a statement to the ASX.

Capital returns

The decision promises to be a positive one for investors, with the mining giant declaring it would evaluate the appropriate way to maximise shareholder value, “via future dividends, share buybacks or a combination of both.”

It comes as coking coal prices hit record highs amid a supply shortage globally, ensuring top value for the BHP assets and at a time when the global miner’s biggest revenue earner, iron ore, has rapidly lost value after tumbling more than 50% in the last 2 months to around US$100 a tonne.

This has already caused its share price to slide nearly 30% over the last 6 months.

It also ensures a better than expected exit from the assets at a time when coal producers like BHP have been under mounting pressure from investors and financial institutions to abandon the sector due to the fossil fuel’s enormous contribution to global warming.

BHP reported a 9% decline in metallurgical coal output during the September quarter.

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