Mansoor’s Radar: Whitehaven ready to splash for Bowen Basin coalSeptember 26, 2023
Picture that it’s March 2018 and Australian producer Whitehaven Coal (ASX: WHC) has just arrived in central Queensland through acquiring Rio Tinto’s (ASX: RIO) 75% interest in a greenfield project in the Bowen Basin. Fast forward in time and a lot has been done at the Winchester South project north-west of Emerald, although less is being said about the proposed new mine in Central Queensland these days.
Five years on from Whitehaven’s Queensland snap-up, it’s late 2023 and the coal-rich state has provided another opportunity for Whitehaven to expand its footprint in the basin. The option? A potential US$3.5 billion buy-up of two operating coal mines owned by BHP Group (ASX: BHP) and Mitsubishi Corp (TYO: 8058) – the Daunia and Blackwater coal operations.
Why is BHP selling two operating coal mines?
The BHP Mitsubishi Alliance’s (BMA) proposed divestment is part of big miner BHP’s ongoing strategy to simplify its coal portfolio. The producer wants to focus on tier 1 assets and reduce its capital allocation to mines where its return on capital is not comparable to the likes of iron ore or copper. The strategy is why BHP exited the large Cerrejon coal mine in Northern Colombia, sold its BHP Mitsui Coal assets to Stanmore Resources (ASX: SMR) and tried selling its New South Wales energy coal mine Mount Arthur Coal. Simply put, coal assets don’t get the capital within BHP’s portfolio, and second-tier mines are the first on the miner’s divestment list.
BMA’s mine assets are Dunia, with its small operating mine life, and Blackwater, with its very long operating life-of-mine and medium volatile quality. Both are on BHP’s divestment list and that’s where Whitehaven comes into the picture.
BHP plans to exit its stakes in Dunia and Blackwater after taking an in-principle stand against the Queensland Government’s tripling of top-end coal royalties. The big miner has been vocal in highlighting Queensland is the highest coal-taxing regime in the world. Given the negative impact the state’s adjusted royalty rate of 7-40% of revenues has on investment economics and sovereign risk, BHP has no plans to invest in further growth in Queensland – although it does intend to optimise and sustain its existing operations.
Blackwater mine summary
Blackwater is one of the largest open-cut coal mines in Australia, with its mine reserves laying within 10 mining leases covering about 21,000 hectares. Mining has occurred in 13 separate pits stretching for 35 kilometres from north to south. The Central Queensland mine is south of Blackwater township and produces metallurgical and thermal coal for the nation’s export market.
There was a marginal rise in marketable output for Blackwater to about 12 million tonnes in 2022. Blackwater’s product is mainly mid-vol coking coal, although site operators also produce energy coal – either as a primary product or by-product – to utilise extra processing and logistics capacity. Energy coal is mainly high-ash and doesn’t receive the same market price. In addition, the Blackwater mine’s railway is narrow gauge-line, making the operation’s logistics cost higher when compared to other operations in the basin that run on the Goonyella railway system. Finally, the mine’s Gladstone port rate is high as well, comparing unfavourably to Dalrymple Bay Coal Terminal which is also in Central Queensland.
On a current production basis, marketable production can last the next 30 years.
Daunia Mine summary
Daunia is a Bowen Basin surface mine where miners produce semi-hard coking coal and pulverised coal-injection coal for export markets.
Daunia’s annual marketable output fell 0.9 Mt to 3.0 Mt in 2022. The mine’s production was impacted by wet weather in the final quarter of the year and its transition to using autonomous trucks. Analysis suggests a gradual rebound in Daunia’s output to 5 Mt a year by 2025, remaining at this level until its marketable reserves are exhausted in 2036.
Daunia is the BMA’s second coal mine to approve autonomous trucks. Daunia’s first autonomous trucks began operating in January 2021.
Whitehaven Coal upside
There are multiple areas where Whitehaven Coal can receive benefits from acquiring BHP Mitsubishi Alliance’s Daunia and Blackwater mines.
During financial year 2023 Whitehaven Coal made A$66 million worth of acquisitions to support its existing mine plan. If the Australian coal producer acquires BMA’s Daunia and Blackwater assets for a ballpark US$3.5 billion, it would be one of the biggest transactions in Australia since 2017 when Yancoal Australia (ASX: YAL) grabbed Rio Tinto’s Coal & Allied Industries (ASX: CNA) assets in the NSW Hunter Valley for US$2.69 billion.
Daunia and Blackwater will remain in Australian hands, with the Federal and Queensland governments both supportive of local ownership.
Read the previous Mansoor’s Radar: The Comet journey from Liberty to Troilus East
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