The BHP Group Ltd (ASX: BHP) share price is up this morning after the resources giant announced a deal to sell a coal asset for at least US$1.2 billion.
BHP sells coal asset
BHP announced today that it has entered into an agreement to sell its 80% stake of BHP Mitsui Coal (BMC). This asset is a joint venture operation that produces metallurgical coal. That’s different to thermal coal, which is used to produce energy.
The resources giant is selling its subsidiary that owns the 80% of joint venture t0 Stanmore Resources Ltd (ASX: SMR). The Stanmore Resources share price has gone up by 15% at the time of writing.
BHP will get US$1.1 billion when the deal is completed, another US$100 million in cash in six months after completion and the potential for up to US$150 million in a price-linked earnout which would be paid in the 2024 calendar year. BHP will provide certain transitional services to Stanmore Resources for a short period of time after completion.
The deal still needs to go through the process of regulatory approval.
Management comments
The BHP President of Minerals Australia, Edgar Basto said:
“As the world decarbonises, BHP is sharpening its focus on producing higher-quality metallurgical coal sought after by global steelmakers to help increase efficiency and lower emissions.
“South Walker Creek and Poitrel are well-run assets that have been an important part of our portfolio for many years and we are grateful for their contribution to BHP.”
What will BHP do with the money?
BHP said that net proceeds will be incorporated into and evaluated in accordance with its capital allocation framework to determine the appropriate way to maximise value to shareholders through future dividends, share buybacks or a combination of both.
Summary thoughts on this deal and the BHP share price
The resources giant will be increasing its attractiveness to investors who want to avoid coal. This seems like a good time to be selling coal assets, with coal prices at a pretty strong point right now.
I like the evolving nature of the BHP’s portfolio, with increasing focus on future commodities like potash and divesting things like oil and coal.
