Whitehaven Coal transforms into major coking coal player with US$3.2b BHP-Mitsubishi deal

Australia’s coal industry has been reshaped with Whitehaven Coal (ASX: WHC) set to acquire the Daunia and Blackwater coal mines in Queensland from the BMA Group, a joint venture between BHP (ASX: BHP) and Japan’s Mitsubishi.

The deal involves a US$3.2 billion payment, with the upfront amount set at US$2.1 billion, followed by three annual payments totalling US$1.1 billion.

The impact on the acquiring company is significant.

Whitehaven, over a 10-year average period, has seen 83% of its output revenue come in the form of thermal coal.

But, with the addition of these two mines, Whitehaven will see its revenue from metallurgical coal share rising to 70% of its total revenue.

Metallurgical coal has strong future

This transformation, as Whitehaven terms it, should be seen against the background of a changing coal world.

Thermal coal sales are going to be under threat as more coal-fired power stations are retired and replaced by renewable energy projects.

But, as of now, there is no significant threat to metallurgical coal’s critical role in steel making.

Metallurgical coal is also playing a part in energy transition through increased steel demand to build renewable energy infrastructure.

The two mines are located in Queensland’s Bowen Basin and will increase Whitehaven’s coal reserves there from 1.1 billion tonnes to 3.1 billion.

This includes 673 million tonnes of recoverable reserves.

Diversification will reduce risk

The company says its expansion outside its present prime operation will reduce risk.

Instead of mining mainly in the Gunnedah Basin and shipping through the Port of Newcastle only, the enlarged business will grow from four to six operating mines.

And shipments will be spread over three ports, with the company now set to use Hay Point and Gladstone ports in Queensland.

The company adds that this deal increases Whitehaven’s exposure to the India and Southeast Asia markets.

Mines to change hands next year

BHP said in a statement today that completion of the sale is expected to happen in the June 2024 quarter.

BHP President, Minerals Australia, Geraldine Slattery said the BHP Mitsubishi alliance sees this as a good outcome for the workforce and communities at the Blackwater and Daunia mines.

“Whitehaven Coal has a strong record as a responsible and reliable operator,” she added.

BHP plans to use the proceeds of the sale to reduce debt.