BHP (ASX:BHP) will reap US$1.35 billion from its coal asset sales. Where might the cash go?

Investors will be keeping a keen eye on the miner’s shares.

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The BHP Group Ltd (ASX: BHP) share price will be one to watch out for in the near-term future. This comes after the miner is set to receive US$1.35 billion from disinvesting its 80% interest in BHP Mitsui Coal (BMC).

At Thursday’s market close, BHP shares ended the day 2.57% higher to $36.66.

Will shareholders be rewarded from BHP’s sale?

Last week, BHP announced that Stanmore Resources will acquire metallurgical coal mines, the South Walker Creek and Poitrel coal mines. 

The US$1.35 billion purchase price will be made up of US$1.2 billion in cash and a potential follow-up payment of up to $150 million after two years linked to the performance of coal prices.

The transaction is said to be consistent with BHP’s decarbonisation strategy as it pulls away from fossil fuels.

In August, the company unveiled a deal with Woodside Petroleum Limited (ASX: WPL) to offload oil and gas operations in exchange for new shares.

In June, BHP agreed to the sale of the Cerrejon thermal coal mine to Glencore Plc for around $294 million.

A strong free cash flow coupled with BHP’s balance sheet could mean that shareholders are rewarded with a special dividend. It’s anyone’s guess how much the company will give, but this is likely to be supplemented with its mid-2002 dividend.

For the sale to go ahead, a number of conditions are still required to be met along with regulatory approvals.

Completion of the deal is expected to happen sometime by around June 2022. Up until then, BHP will closely work with Stanmore Resources to bring up to speed and ensure a smooth transition.

About the BHP share price

Over the past 12 months, BHP shares have registered nil gains, but have lost almost 15% in 2021. The company’s share price trekked higher up until August, before plummeting to November 2020 lows.

BHP commands a market capitalisation of roughly $108.16 million, making it the third most valuable company on the ASX.

Motley Fool contributor Aaron Teboneras owns shares of Woodside Petroleum Ltd. 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.

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