Shares in BHP Group Ltd (ASX: BHP) have tumbled this month followed by sharp volatility across the ASX.
At Friday's market close, the BHP share price dipped 3.39% to $42.52 apiece. This means its shares are now down 8% in the past week.
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BHP decides to keep thermal coal asset
Senior management's decision to retain BHP's New South Wales Energy Coal (NSWEC) business could provide a short-term EBITDA boost.
Thermal coal prices have accelerated since the Russian war in Ukraine which is providing a fruitful cash injection.
As reported by the Australian Financial Review, Macquarie analysts sent a note out to its clients with a positive outlook.
As such, the broker believes that favourable commodity prices could spruce up another US$1.3 billion ($A1.85 billion) in EBITDA for BHP.
From August 2018 to August 2020, there was continued downward pressure on thermal coal prices, with consecutive falls month-on-month. This led NSWEC's Mt Arthur coal mine in Hunter Valley to record an EBITDA loss during FY19 and FY20.
A perfect storm of port delays and increasing costs also weighed down the mine's operating performance.
However, things have begun to turn around for BHP's thermal coal asset as prices have reached record highs this year.
Last week, the company announced it will take the NSWEC Mt Arthur coal mine off the market. The decision was made after an unsuccessful 2-year search for a buyer as well as a change in trading conditions.
Macquarie assumes that NSWEC might contribute up to 6% of BHP's estimated group EBITDA in FY23. And this could reach 8% if spot prices for thermal coal continue to accelerate.
Touching on the projections for BHP's NSWEC, Macquarie analysts commented:
The material valuation change reflects our conservative long-term energy coal-price assumptions. At a flat thermal-coal price of US$100/t, the asset would have a NPV that is close to zero.
BHP noted that it will pursue obtaining mining permits to carry on its operations at Mt Arthur until 2030.
BHP share price summary
A choppy 12 months has caused the BHP share price to register nil gains for the period.
However, year-to-date, the company's shares are up 15% on the back of the commodity boom.
BHP commands a market capitalisation of approximately $215.25 billion.
