7th Jun 2016 11:02
LONDON (Alliance News) - BHP Billiton PLC on Tuesday said it has agreed to sell its interest in IndoMet Coal to its partner, as the multi-commodity miner continues to restructure the business and focus on organising its assets by geography rather than by commodity.
BHP holds a 75% interest in IndoMet Coal, a coal company operating within the central and east Kalimantan regions of Indonesia. It covers seven coal contracts of work and holds the Haju mine that is capable of producing up to 1.0 million tonnes of coal per year. BHP provided no financial details on the disposal.
The first shipment of metallurgical coal only left the Haju mine in the first quarter of 2016, when BHP said it was considering its long-term future options at IndoMet. Individual production figures for Haju have not been provided but is unlikely to be producing at full capacity after only starting production earlier this year.
To put the Haju mine's output into perspective, BHP is aiming to produce 40.0 million tonnes of metallurgical coal before the close of the current financial year that will end in July. This means Haju, at full capacity, will represent only 2.5% of overall production across the BHP coal portfolio this year.
The FTSE 100-listed company has agreed to sell its stake to its partner, PT Alam Tri Adabi, part of Indonesia's PT Adaro Energy Tbk, for an undisclosed amount. Regulatory approvals will be needed before the transaction can be completed.
Notably, Adaro Energy cited BHP's Indonesian coal boss, Mark Small, back in September as saying Indonesia offered a low-wage structure and the opportunity to bring costs down, a key focus for the wider market at a time of lower commodity prices, and had said that BHP had already undergone its simplification programme - suggesting IndoMet at one time had been identified as a key asset for BHP.
With a portfolio of four major commodities - namely coal, copper, iron ore and petroleum - BHP has joined the wider natural resource industry in attempting to realign its business to suit the current market of lower commodity prices.
However, unlike some of its major peers who are changing the commodity-mix of their portfolios, BHP has decided to restructure its asset portfolio by geographic regions rather by than narrowing the number of different of commodities that it produces.
The majority of BHP's assets lie within Latin America or in Australia, and the company has little other activity in Indonesia outside IndoMet Coal. But BHP's commitment to coal in general seems unchanged.
James Palmer, IndoMet Coal asset president, said the Indonesian coal assets could support a larger scale development but said BHP ultimately has a range of other growth options that are "more attractive for future investment".
Australian media said last month that BHP, alongside some other non-London-listed entities, was pursuing two major coal mines based in Australia that are being sold by Anglo American PLC, supporting the view that the IndoMet is being sold due to its location rather than as a move away from coal.
Anglo American is a prime example of a resource company in the midst of restructuring its portfolio by commodity, as the London-listed miner aims to offload coal assets to focus on diamonds, copper and platinum. The two major mines in Australia that are up for sale are Grosvenor and Moranbah. BHP, private-equity firm X2 and US-based buyout firm Apollo all are reportedly interested in snapping those mines up.
Glencore PLC also has been rumoured to be interested in the two mines, and although no ideal price has been outlined by Anglo American, press reports suggest they could fetch around AUD1.30 billion.
BHP shares were trading down 0.1% at 885.40 pence per share on Tuesday.
By Joshua Warner; [email protected]; @JoshAlliance
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