Panmure Liberum has kept its 'hold' rating on BHP Group Ltd (LSE:BHP, ASX:BHP), warning the miner’s decision to shut its Saraji metallurgical coal mine in Queensland could be a signal of a broader retreat from the industry altogether.
The closure, due in November, reflects a mix of factors, including falling coal prices and the sharply higher royalties imposed by the Queensland government in 2022.
According to BHP, the new regime means its royalty bill is now eight times greater than its profit on Queensland coal sales.
Panmure analysts said the company’s explanation stacks up, but suggested there is more going on. “We suspect Saraji’s closure is based on several other factors,” the broker wrote in a detailed note.
Among them: ageing infrastructure, operational headaches such as water management, and the global shift in steel production away from coal-intensive methods.
There’s also a longer-term environmental push at play, with BHP, like other large miners, under pressure to reduce carbon emissions by selling off lower-quality coal assets.
The Saraji decision will leave BHP operating just three mines in its BHP Mitsubishi Alliance (BMA) joint venture, down from seven a few years ago. Panmure values the remaining assets at around $10.3 billion and asks whether BHP might now look to offload the rest.
Even after China lifted its unofficial ban on Australian coal, exports have failed to return to previous levels. Meanwhile, rivals such as Glencore have expanded, acquiring Teck’s met-coal assets last year and positioning themselves as the sector’s price-setter.
Panmure's long-term outlook for coal prices remains cautious, with forecasts for hard coking coal (used in steelmaking) falling to $176 a tonne over time, well below recent spot prices.
Still, the broker sees some upside risk to prices if smaller operators struggle to fill the supply gap left by the majors.