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Mining giant profits take a hit due to China coal ban and COVID

BHP NSW Energy Coal
BHP NSW Energy Coal

A multinational resources company suffered a minor blow to its bottom line after Communist China partially suspended free trade with Australia.

BHP reported a US$4.8 billion (A$6.2B) net profit for the six months ending on 31 December 2020, representing about a 7 per cent decrease on the previous corresponding period’s US$5.1B (A$6.6B) reported back in late 2019.

$2.8B ‘exceptional loss’

The proponent blamed its New South Wales Energy Coal (NSWEC) subsidiary, extra expenses associated with the worldwide pandemic, a rising Australian dollar and weak coal spot prices for creating an “exceptional loss” totalling US$2.2B (A$2.8B).

“A steep, COVID-19 induced decline in rest of the world (ROW) demand, which normally comprises around four-fifths of the seaborne trade, was the major factor driving lower prices for much of the 2020 calendar year, with China serving as the effective clearing market,” the company said in a public statement.

“However, late in the 2020 calendar year, these positions reversed, with ROW demand beginning to improve, while uncertainty about China’s import policy towards Australian coals spiked.”

Fire sale

BHP responded to the softer market by selling its stakes in multiple coal operations while, at the same time, exploring coal export opportunities in other Asian markets.

“The divestment process for our interests in BHP Mitsui Coal, NSWEC and the Cerrejón Coal Mine is progressing, with extensive due diligence being undertaken to assess both demerger and trade sale opportunities,” the company said.

“Demand for seaborne hard coking coals (HCC) is expected to grow alongside the growth of the steel industry in HCC importing countries, such as India.”

Automate to cut costs

The proponent is also trying to save money through rolling-out more driverless trucks at multiple Queensland mine sites.

“At the Goonyella Riverside Mine in Queensland, the first coal site to implement autonomous haul trucks, the deployment of 86 autonomous trucks continues in line with the plan and is expected to be completed early in the 2022 calendar year, on schedule and budget,” the company said.

“At the Daunia Coal Mine in Central Queensland, the second coal operation to implement autonomous haul trucks, the first trucks began operating in January 2021. The rollout is expected to be completed early in the 2022 calendar year, on schedule and budget.”

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BHP believes strong performing Queensland coal operations will continue to be viable, provided the Chinese Communist Party does not continue to reject Australian coal imports.

“A stronger second half performance is expected at Queensland Coal with higher volumes and less planned maintenance, subject to any potential impacts on volumes from restrictions on coal imports into China and further significant wet weather during the remainder of the 2021 financial year,” the company said.

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