BHP coal a performer
C’MON, I think it’s time we started being honest about coal miners going broke.
Wednesday 17 August 2016
Buried beneath the headline-grabbing $8.3 billion loss made by BHP in the last financial year were some strong profits in their CQ coal business that should signal the end of the overwhelming pessimism that has gripped the sector for nearly five years.
BHP is by far and away the biggest coal miner in the region and the fact that there Queensland coking coal mines have made the front page of the Chief Financial Officer's annual results presentation confirms the miner no longer sees them as the ugly duckling of its mining portfolio.
On the page titled “Asset quality and operating performance drive margins,” BHP listed the performance of just four commodities - petroleum, iron ore, copper and coking coal.
While coking coal is a long way behind the 53% margins being earned in Iron Ore, it returned a respectable 17% margin (EBITDA) delivering BHP earnings of around three-quarters of a billion dollars in a single year.
According to BHP the costs per tonne of coal before interest, tax depreciation and amortisation (EBITDA) are around $71 compared to the prevailing coking coal price this year of around $110 a tonne.
Given the consensus about coking coal prices over the next five years is that they will reach around $160 a tonne - we might, in fact, be entering a new purple patch in mining.
Later in their annual report BHP was bullish on its forecast demand for coal and signalled there was not much room left to cut costs.
“Metallurgical coal outlook is supported by growing demand for a high-quality product,” they said in the report.
“The cost curve has flattened, and lower prices are leading to closures and reduced investment.
“[However] the world continues to require steel, and metallurgical coal is essential for pig iron production and we expect China to continue to import metallurgical coal.
“The robust outlook is underpinned by a scarcity of high-quality resources and demand growth in emerging economies – particularly in India where we expect strong steel production.”
In thermal coal, BHP is predicting that even though some countries are moving away from it as an energy source, that will be more than offset by countries in Asia who will use more of it.According to BHP, total demand will increase by 10-15% by the mid-2020s, pointing out that India and Southeast Asia has 26% of the world’s population, but accounts for just 13% of global electricity generation.