BHP Billiton announces plans to increase coal production

June 21, 2016

As many companies are exiting the coal sector BHP Billiton announced plans to boost its presence in the sector by increasing its coal output by 8 percent over the next three years while slashing costs. The company said it would only consider premium, lowest-cost assets for any acquisitions.

Reuters reported that BHP Billiton is in the enviable position of running profitable coal mines at a time when more than half the world's coal mines are losing money. BHP Billiton is the world's top exporter of coking coal used in steelmaking and also a producer of energy coal.

BHP Billiton Minerals Australia president Mike Henry told reporters that the company is optimistic about its long-term prospects for the coal business but expects to face challenging markets in the short to medium-term.

"We have the portfolio of assets best placed to meet this future demand," Henry said.

BHP increased its forecast for coking coal output for the current year, ending June 30, by 6 percent to 42.5 Mt (46.8 million st), and said it plans to hike production to 46 Mt (51 million st) in 2018.

It also aims to slice costs by $600 million over the next year by getting more out of its trucks, wash plants, and workers, and negotiating better deals on parts and equipment.

That would help cut its coking coal costs to 9 percent over the next year to $52/t ($47/st). That compares with coking coal prices which averaged more than $90/t ($81/st) in the June quarter.

While it has sold, spun off or shut most of its energy coal mines amid a global push to curb carbon emissions, BHP did not rule out bidding for rival Anglo American's one-third stake in the Cerrejon energy coal mine in Colombia or its coking coal mines in Australia.

Henry declined to comment on specific assets, but said any acquisition would have to fit with the company’s tighter geographic focus, be high quality, low cost, and come at a good price.

Analysts have said it would make sense for BHP to own Anglo American’s Moranbah and Grosvenor coking coal mines, which are near its own mines in Queensland’s Bowen Basin. The company has said it is mainly seeking acquisitions in copper and petroleum.

BHP Billiton owns nine coking coal mines in Australia's Queensland state with Japanese partners Mitsubishi Corp and Mitsui & Co. It also owns the biggest energy coal mine in the Hunter Valley in Australia and a one-third stake in Cerrejon, alongside Anglo American and Glencore Plc.



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