BHP shares are up amid rumour it could be thinking of selling its coal business.
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The BHP Group Ltd (ASX: BHP) share price is currently up more than 1% amid rumours regarding its coal assets.
BHP generates most of its profit from iron ore and copper, but the business also has metallurgical coal and thermal coal divisions.
Coal asset sale on the cards?
According to reporting by The Australian, BHP may be considering selling its coal assets.
Previously, it was rumoured that BHP was very close to selling its coal assets to Peabody Energy in August, though nothing has happened.
However, the discussions have reportedly continued.
Coal prices continue to climb and BHP is benefiting from the surge in profit that the coal segment is generating.
The Australian reported that the high coal price is encouraging other potential bidders to think about it such as BUMA and Sinar Mas Group. However, New Hope Corporation Limited (ASX: NHC) is apparently not one of the businesses that are currently interested.
The newspaper quoted a figure of approximately $2 billion for the potential worth of the coal business.
It was noted that BHP may be motivated to sell off its coal assets whilst the coal price is so high, rather than waiting for when there may be no buyers.
However, it may be possible that BHP decides to hold onto the assets and benefit from the cashflow it makes and “run them down” over the coming years.
BHP to exit all fossil fuels?
If BHP were to exit coal, then that would leave it with a portfolio of iron ore, copper, nickel and potash. That might put the BHP share price in focus for investors that exclude ‘fossil fuels’ from their portfolios.
If readers are wondering about the petroleum business, it’s currently in the process of merging that with Woodside Petroleum Limited (ASX: WPL).
The two businesses have agreed to merge the oil and gas portfolios in an all-share merger to create a global top 10 independent energy company by production.
After BHP shareholders receive new Woodside shares, BHP investors will own 48% of the business and Woodside will own 52% of the combined company.
Describing the benefits of the merger, Woodside and BHP said:
With the combination of two high-quality asset portfolios, the proposed merger would create the largest energy company listed on the ASX, with a global top 10 position in the LNG industry by production. The combined company will have a high margin oil portfolio, long life LNG assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition.
One of the benefits that the companies provided further detail on was estimated synergies of more than US$400 million per annum from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration.
BHP share price snapshot
According to the ASX, BHP has a market capitalisation of $112.3 billion.
Commsec puts BHP shares at around 10x FY23’s estimated earnings.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.