Industry leading mining firm, Glencore has affirmed whispers that investment pendulum has swung back to coal. The company has issued signals that it was reconsidering retaining its coal production instead of demerging and separately listing the business, possibly in New York.
The spin-out was part of a plan announced last year in which Glencore bought Elk Valley Resources (EVR), a subsidiary consisting of metallurgical coal production owned by Canadian firm Teck Resources. The $6.9bn deal boosts Glencore’s total coal output to around 130mt/y.
The company thinks that by end of consultations to declutter the portfolio, it could throw spotlight on its critical minerals production, including copper – while satisfying investors who have been uncomfortable with Glencore’s carbon footprint, despite an earlier pledge by the group to run down coal reserves by the mid-2040s, and shut 12 mines by 2035.
More than 30% of voting shareholders opposed Glencore’s Climate Action Transition Plan at the annual general meeting in 2023. But only a year later this opposition has cooled. Whereas in 2023 it looked as if Glencore would struggle to get future Climate Plans passed, only 10% of shareholders opposed it at this year’s AGM. What changed?
More broadly, there is scepticism with the way the market and governments have tackled renewable strategies. But the reality is that as long as we need energy, people will burn coal. The reason is simple: If you don’t have energy security, you have chaos.
Vuslat Bayoğlu, MD of Menar, a South African privately owned 3.5mt/y coal exporter, said: “There is no way renewable power can provide the baseload power of thermal coal. What we need to do is focus on how to we burn in a clean manner.”
Bayoğlu is an outspoken critic of Eskom’s former CEO André de Ruyter for persisting with a renewable strategy to solve loadshedding. “You can’t solve the problem with renewable energy, you need baseload,” he says.
Eskom itself successfully appealed a government challenge in June, enabling it to keep 45MW of coal-powered energy production open until 2030 without facing stringent restrictions. Closing the coal-fired power stations “potentially involved plunging the country into darkness”, said a report that informed Environment Minister Barbara Creecy’s decision on Eskom’s appeal.
Bayoğlu says a failure to recognise the importance of coal to energy security is akin to the West’s failure to secure the mineral supply chains for electric vehicle manufacture – now firmly controlled by a fully integrated Chinese industry, he says.
“China controls 80% of solar panel production. They are building coal-fired power stations because they see there is no other way. The world is closing coal-fired power stations but in Germany companies are moving to Poland because they can’t afford the energy prices.”
Instead of aggressively phasing out coal, the South African government’s Integrated Resource Plan (IRP), an energy strategy, has taken a more moderate stance recommending 18 000MW in coal-fired power generation by 2050 instead of the previous target of 10 000MW. Coal must be a part of a diversified energy portfolio,” says July Ndlovu, CEO of Thungela. Government has accepted reality, he adds.
The IRP may give impetus to players such as Exxaro Resources which says it may develop coal reserves in Limpopo province. “We still have reserves in the likes of Thabametsi; there’s a lot of power station coal there,” says Exxaro CEO Nombasa Tsengwa. Coal may provide a more affordable and less risky destination for R12bn in cash held by Exxaro for diversification into “green metals” that is proving hard to realise.
Tsengwa says a meeting with the World Economic Forum in 2022 registered with her. South Africa’s renewable strategy can’t be met to its fullest extent, at least not yet, says Tsengwa. It depends on developing a national distribution network that isn’t currently sufficient to support the scale of renewable projects in the pipeline.
Developed economies are facing similar problems. Germany’s climate adviser said in June the country’s 2030 goal was likely beyond it. In April, Scotland ditched its 2030 decarbonisation target saying it was “out of reach” following delays to its draft climate change plan.
In the private sector “green funds” haven’t performed, resulting in significant redemptions. According to Barclays, investors globally have pulled about $38bn out of environmental, social, and governance (ESG) funds this year. In fact, 2024 is set to be the first year on record where ESG-labelled funds have seen more money withdrawn than added. Net ESG fund inflows in the UK have declined from £11bn in 2021 to a negative £3bn this year (see graph).
Investors have called for a more reasoned approach to the fossil fuel-renewable nexus. “There’s too much demonising between industry and the environmental community right now,” said Paul Bodnar, BlackRock, Inc.’s former chief of sustainable investing, at a conference in June. “It’s like a fight to the death. It needs to be a little bit more of a cooperative posture.”
Clearly fossil fuels are here to stay, at least in the short term – but their risks will be ignored at our collective peril, says former CEO of BP Lord John Browne. He was quoted in the Financial Times referencing the Aesop fable of the rider who stops feeding his horse in peacetime, only to find it lame when war comes. The soldier in the analogy represented the companies who are pulling back on climate action, creating more long-term risk for all concerned as the ever-greater effects of the climate crisis loom.
“The story is a good reminder that if we want something to serve us longer, we need to take care of it constantly,” he said. “The hard truth is that we’ve done a poor job of reconciling corporate actions with the interests of society and the planet in a balanced way. Yet the urgent need to do so is undiminished.”
*With additional reports by David McKay for miningmx
