HONG KONG (Reuters Breakingviews) - BHP is brushing up its green credentials, albeit for selfish reasons. Surging iron ore sales cushioned declines in other commodities, as underlying earnings attributable to continuing operations fell 4% to $9.1 billion for the fiscal year. Boss Mike Henry plans to ditch some high-polluting energy assets, though for economic, not for environmental, motives. It still makes strategic sense.
Voracious Chinese demand for iron ore continued to power earnings at the world’s largest listed miner. Underlying EBITDA for the key steel-making ingredient jumped by more than 30% to $14.6 billion in the year to June, making up two-thirds of BHP’s total. That’s in sharp contrast to the Anglo-Australian group’s other businesses, which all contracted on the back of weak prices.
Henry, who took the helm of the $135 billion company at the start of this year, announced long-anticipated plans to divest thermal coal operations, following a similar exit by rival Rio Tinto in 2018. The division is relatively small, but as one of the most polluting fuel categories, getting energy coal off the books should please investors seeking a more environmentally sustainable BHP. The chief executive will put a stake in the Australian Bass Strait petroleum venture up for sale as well.
There are caveats. Thermal coal represents just a fraction of the company’s total assets and has financially underperformed, so the sale does not necessarily represent the attitude shift climate activists hoped for. Although Bass Strait accounted for over a third of total petroleum EBITDA, the venture is one of BHP’s oldest assets and has probably peaked. Moreover, the company will keep investing in other oil and gas projects.
Even so, the company will update its emissions reduction targets next month, and has been open about its sustainability plans. There’s also money to be made by shifting its portfolio to metals like copper and nickel used in electric vehicles and renewable technologies, for example. Asset managers like BlackRock are also putting increasing emphasis on environmental, social and governance standards. Indeed, analysts at Deutsche Bank recently downgraded BHP’s stock largely due to its heavy exposure to fossil fuels. Shareholders will benefit from a slightly cleaner BHP.
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