Ground Breakers: BHP outs Whitehaven as its preferred bidder in escalation of coal war

- Whitehaven has entered a trading halt as BHP announced it as the preferred bidder for its multi-billion dollar Daunia and Blackwater coal mine sale
- BHP sees big growth in copper tonnes year on year after OZ Minerals deal
- Lithium Power International endorses $385 million takeover bid from Chilean copper giant Codelco

Whitehaven Coal (ASX:WHC) will come face to face with an activist shareholder lobbying against its plan to purchase BHP’s (ASX:BHP) Daunia and Blackwater coal mines in Queensland as the world’s biggest miner used its quarterly report to out Australia’s premium standalone coal stock as the preferred bidder from a competitive process.

It comes around eight months after BHP announced it and 50-50 BMA JV partner Mitsubishi were looking to divest the mines, which produce a lower quality met coal than the premium hard coking coal sold from its core mines like Saraji and Peak Downs.

No price has been revealed yet, but reports have placed the sale consideration at around US$3.5 billion ($5.5b), something that would require a significant financing package for Whitehaven to get across the line, even with a $2.65 billion war chest as of June 30.

London hedge fund Bell Rock Capital has swung hard at Whitehaven’s board, initiating a lobbying campaign to dump directors and vote down its remuneration report at the company’s upcoming AGM this month in a bid to kill the deal.

It says executives including CEO and MD Paul Flynn are incentivising themselves to chase growth via M&A that will hurt shareholder returns after two years of incredible yields in the form of dividends and a buyback scheme that returned almost $950 million to investors.

That scheme has now been paused as it became apparent Whitehaven was odds on to win the BHP process, with tensions certain to flare again today.

At least one proxy advisor, ISS, is understood to be backing Bell Rock’s position on executive remuneration, but others have sided with the $5.7 billion company’s Mark Vaile-led board.

The company wants the mines to diversify its business away from thermal coal, which is likely to come under increasing pressure in the coming years from the transition to renewables and nuclear power.

Steelmaking coal has no true substitute in the blast furnace, still the primary method to produce crude steel for decades to come, and trades currently at a significant premium to Newcastle grade thermal.

“Our consistent strategy for many years has been to generate profits and diversify our business by sustainably investing in our business and increasing our exposure to metallurgical coal at a time when demand from overseas markets is growing,” WHC chair Mark Vaile wrote in a letter to shareholders to counter the Bell Rock campaign last Friday.

He said proxy advisors and Bell Rock had endorsed an identical remuneration scheme at last year’s AGM, although the M&A bid has moved the goalposts.

Premium hard coking coal futures rose almost 4% to US$337.50/t yesterday while thermal coal was unchanged at US$143.75/t.

BHP’s results support the idea quality spreads are increasing as dynamics in the met coal market shift. While its overall met coal pricing in the quarter was down 13% on the June half (US$237.07/t v US$273.08/t), the fall was more pronounced in its weaker coal grades.

Hard coking coal prices realised by BHP dropped 12% from US$276.22/t to US$242.52/t, while weak coking coal prices fell a hefty 24% from US$250.38/t to US$190.74/t (still highly profitable against unit costs of US$95-105/t).

And what about BHP’s results?

Oh yeah, BHP also released its results but we were distracted by the prospect of a delectable, say it with us, proxy battle.

For the first time in yonks copper is the headline, as its newly acquired OZ Minerals assets in South Australia and rising volumes out of Escondida and Pampa Norte in South America helped the Big Australian increase copper output 11% YTD.

It produced 457,000t of the red metal, including 273,300t at Escondida and 71,700t at South Australia’s Olympic Dam, Prominent Hill and Carrapateena mines, though output was 4% down against the June quarter.

BHP has maintained guidance of 1.72-1.91Mt for its copper division this year.

At its WAIO operations guidance also remains unchanged, though shipments fell 4% to 69.4Mt on both the June 2023 and September 2022 quarters. Samarco production rose 7% YoY to 1.2Mt.

Its biggest production miss was at the BMA coal ops, down 16% YoY and 34% QoQ to 11.2Mt on a 100% basis on planned maintenance and a longwall move, while its Nickel West operations saw production fall 2% YoY and 8% QoQ to 20,200t but guidance of 77,000-87,000t maintained as a planned shutdown of its refinery was delayed from October to February next year.

BHP CEO Mike Henry said the company was on track to hit full year production and cost guidance at all its assets.

“First quarter operational performance was highlighted by a 11% uplift in copper production from the previous year. After completing a typically busy quarter of planned maintenance particularly at our Australian assets, we are on track to achieve full year production and unit cost guidance,” he said.

“BMA in particular was impacted by planned maintenance, an extended longwall move and low opening inventory following drawdowns in the prior year.

“Jansen Stage 1 in Canada is approximately one-third complete after a productive summer. In South Australia, we saw strong operational performance in the first full quarter of production for the new province, as we bring our copper assets together and progress further exploration drilling.”

BHP also saw output at its Mt Arthur thermal coal mine in New South Wales’ Hunter Valley, due for closure by 2030, fall 24% to 3.6Mt.

Daunia and Blackwater, the mines subject to the BMA sale process, turned out 3.68Mt on a 100% basis in the September quarter, up around 14.5% year on year on higher volumes at Daunia.

BHP (ASX:BHP) and Whitehaven Coal (ASX:WHC) share prices today

Codelco launches into premium takeover of LPI

Lithium Power International (ASX:LPI) shares are surging after Codelco confirmed a 57c per share cash bid that will see the Chilean copper giant and State miner make the Maricunga salar its own.

One of the largest and highest grade undeveloped brine assets in Chile, it will make Codelco a third force in the country’s stagnating but promising lithium scene.

All production in the South American country, whose salt lakes supply around 25% of the world’s lithium raw materials in a market share Aussie, Argentinian and Chinese producers are eating into by the day, comes from global supermajors Albemarle and SQM.

The Chilean Government wants a bigger slice of the pie, Codelco’s $385 million offer will help get it that.

LPI shares will be sold in the deal, subject to a January shareholder vote, at a 119% premium to its undisturbed closing price of 26c on September 26 and 136% premium to the 24.2c 30-day VWAP on that date.

Backed by 28.25% major shareholder Minera Salar Blanco SpA, it will however come in far below the company’s all time high of 91c hit in April last year, though efforts from Chile’s left-leaning government to progress a lithium policy viewed as an attempt to partly nationalise the industry have seen sentiment in Chile-focused ASX lithium stocks wane this year.

“La adquisición de LPI es una consolidación lógica dentro del panorama del litio del Salar de Maricunga y nos posiciona aún más en nuestra estrategia para convertirnos en un proveedor de metales críticos de relevancia mundial para viabilizar la transición energética y cumplir con la Estrategia Nacional del Litio,” quoth Codelco presidente Maximo Pacheco.

Just putting our Espanol speaking readers first there.

“The acquisition of LPI is a logical consolidation within the lithium landscape of the Salar de Maricunga and positions us strongly to execute our strategy of becoming a globally relevant supplier of critical metals to enable the energy transition, and comply with the National Lithium Strategy,” the translation reads.

“The acquisition of LPI will make the Blanco Project viable through synergies with Codelco’s assets and permits in the Salar de Maricunga. It will enable us to develop a globally outstanding lithium project with exceptional sustainability credentials. We expect that this will generate value for Codelco as well as for our country and in the regions, especially for neighbouring communities.

“Considering the Corporation’s development and growth strategy, this is a strategic acquisition for the creation of value for Codelco and for Chile, thus positioning us as a key player in times of energy transition.

“Copper and lithium are critical minerals that contribute, in a complementary way, to this global task, where Codelco is a world leader.”

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