BHP Group has reached an agreement to divest two Australian coking coal operations to Whitehaven Coal for a minimum of $3.2 billion, marking another step in the world's largest mining company's shift away from fossil fuels.

The decision to sell these assets was announced in BHP's quarterly production report, with Whitehaven Coal being named the preferred bidder for the divestment.

Whitehaven Coal confirmed that it will pay $3.2 billion for the assets, with additional payments of up to $900 million contingent on realized pricing surpassing agreed-upon thresholds.

BHP jointly owns these mines, which supply metallurgical coal to steelmakers in various markets, including China and India, through a 50:50 joint venture with Mitsubishi. According to Liberum Capital, BHP's stakes in these mines are valued at approximately $4.2 billion. The bidding process for these mines attracted interest from competitors such as Indonesian-based mining contractor Bukit Makmur Mandiri Utama PT, Stanmore Resources, and Peabody Energy.

Over the past year, BHP has been actively divesting coal, oil, and gas assets in various locations, including Australia, the United States, and Colombia. This strategic shift aligns with CEO Mike Henry's focus on reorienting the company's portfolio towards materials that are connected to the growth of renewable energy, electric vehicles, and agriculture. In a major move, BHP completed the acquisition of OZ Minerals this year, marking its largest deal in over a decade and significantly increasing its copper volumes.

Henry's strategy also emphasizes divesting from higher-cost mines, advocating that BHP should only retain its highest-quality metallurgical coal operations. These operations have the potential to assist customers in reducing emissions in the steelmaking process. He has previously stated that the imposition of royalties on production by the Queensland government makes it unlikely that these coal mines will attract substantial future investments.

Following the completion of these sales, BHP is set to become the third-largest supplier of this material. There is potential for the company to consider divesting its stakes in remaining assets, as suggested by Liberum Capital in a note on September 20. However, as of October 5, BHP's Chief Development Officer Johan van Jaarsveld indicated that the company currently has no plans to sell other Queensland coking coal operations.

The announcement of this sale coincided with BHP's report that iron ore production from Western Australia had declined by 4% in the three months ending September 30 compared to the same period the previous year. Nonetheless, BHP reaffirmed its production forecast for iron ore for the full year, estimating a range between 282 million tonnes and 294 million tonnes. The company also reported an 11% increase in copper output for the first quarter, while metallurgical coal production fell by 16%.