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Path to net-zero: Miners dump coal to slash emissions, appease investors


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Path to net-zero: Miners dump coal to slash emissions, appease investors

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Glencore PLC's Mt Owen Complex is pictured above. The Swiss-headquartered mining company has pledged to wind down its coal business and achieve net-zero emissions by 2050.
Source: Glencore PLC

The world's biggest mining companies are shrinking their corporate carbon footprints by divesting coal from their operations and off-loading those facilities to new owners, but these spinoffs will do little to reduce overall carbon emissions if the mines continue to produce coal and other fossil fuels.

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This story is part of a series of articles examining the net-zero climate pledges of companies across a range of sectors.

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U.S. utility execs insist 'we can'

European utilities to shift 'harder and faster' post-Ukraine

U.S. chipmakers balance growth vs. going green

Get-out clauses undermine insurers' climate targets

Banks weather storm, win buy-in on climate plans

The metals and mining sector produced about 19.1% of the world's combined Scope 1 and 2 greenhouse gas emissions in 2020, with coal emissions making up a significant portion of that, according to S&P Global Trucost Environmental Profile data. Under pressure from investors and customers, 21 out of the 30 top metals and mining companies by market capitalization have made plans to reach net-zero emissions by 2050 or sooner.

A handful of mining heavyweights discovered a shortcut by unloading the highest-emitting divisions, especially their coal mining operations. Multinational mining companies, including BHP Group Ltd., Rio Tinto Group, Anglo American PLC and Vale SA, have touted their reduced exposure to fossil fuels as an important step toward achieving their climate goals.

Other major miners, including Glencore PLC, one of the world's top coal producers, have taken the opposite approach by buying up coal businesses to wind them down "responsibly."

Skeptical shareholders have been critical of both tactics.

"Companies need to make sure that there are very short-term objectives and granularity on the path to net-zero," Giuseppe Bivona, founding partner at Bluebell Capital Partners, said in an interview. "Whether you keep coal on your books or you create a spinoff, the same applies."

Playing hot potato with coal

Mining giant BHP Group captured headlines in 2020 when it announced plans to pivot away from coal by finding new owners for its lower-grade coal assets.

In November 2021, BHP struck a deal to sell its 80% interest in BHP Mitsui Coal Pty. Ltd., a metallurgical coal joint venture with Japanese company Mitsui & Co. Ltd. Australian mining company Stanmore Resources Ltd. will assume control of BHP Mitsui Coal, which operates the Poitrel and South Walker Creek coal mines in Australia, if the agreement is finalized.

BHP Mitsui Coal produced 8.7 million tonnes of metallurgical coal in 2021, about 21.5% of BHP Group's total metallurgical coal production that year.

Mining giant Rio Tinto Group scrubbed its portfolio of coal, selling its last coal mine in 2018. It sold shares in the Kestrel coal mine in Australia to a consortium comprising private equity manager EMR Capital Pty. Ltd. and PT Adaro Energy Indonesia Tbk. In 2021, diversified mining company Anglo American PLC demerged its thermal coal assets in South Africa, creating the holding company Thungela Resources Ltd.

And Brazilian iron ore miner Vale SA said in January 2021 it would stop mining coal and find interested buyers for its coal assets. Vale made a deal in December 2021 to sell its Moatize coal mine in Mozambique and a coal corridor to private miner Vulcan Minerals.

"We see a thinning of coal assets across the top 40 mining companies," Paul Bendall, global leader of mining and metals at consultancy firm PwC Australia, said in an interview. "Generally, the coal assets have been sold down from Tier 1 to Tier 2 to Tier 3 miners, so the mining production is not being reduced, it's just in someone else's hands."

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Greens seeing red

Critics worry spinning off or finding new owners for coal assets will do little to cap overall global emissions and could compromise the decommissioning process, which is expensive.

"In many cases, smaller companies don't have the same level of accountability in terms of large institutional shareholder bases," said Will van de Pol, a researcher with Market Forces, an environmental nonprofit organization based in Australia.

Simply spinning off coal assets is a losing strategy for reducing emissions, critics said.

"There's not really a way to win," said Robert Pell, founder and director of Minviro, a consultancy firm conducting life cycle assessments for miners. "If you're just selling off your assets, the reality is that the value from that asset is going to be gained by extracting and using that coal."

The Glencore strategy

While some stakeholders want mining companies to wash their hands entirely of coal, a contingent of investors and activist groups said big mining companies should hang on to those assets and take responsibility for shutting them down and cleaning them up.

Swiss mining giant Glencore PLC has vacuumed up coal mines from its competitors and promised to wind down sites in a "responsible manner," according to the company.

Glencore expanded its stake in the Cerrejon coal mine in Colombia, buying up shares from competitors BHP and Anglo American in 2021, and it scooped up Rio Tinto's Hail Creek and Valeria coal assets in Australia in 2018, among others.

"Our strategy of responsibly depleting our coal portfolio over time reflects our belief that we remain the best steward for these assets and that coal will be required to support meeting global energy needs in the short term," Glencore CEO Gary Nagle said.

Glencore has pledged to run down its coal business and achieve net-zero emissions by 2050. Glencore will close three Australian coal mines, including Newlands in 2022, and Liddell and Integra in 2023, according to an investor update published Dec. 2, 2021. It expects operating cash flows to come from its Cerrejon mine until 2032, and "some South African and Australian mines until 2043, and around 2050, respectively," according to its 2021 annual report published March 16. Glencore declined to confirm when it plans to stop mining coal.

The company has bought up more shares in multiple coal assets and staked out expansions at existing coal sites. Glencore's coal production is expected to increase year over year between 12.6% and 22.3% in fiscal year 2022, according to its latest guidance.

"Glencore's climate plan was announced in December 2020 and approved by shareholders last year," Bivona said. "But what happened after that is the company increased its coal production: They bought other mines and they started greenfield projects. It seems to be a bit like a joke, if you ask me."

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Shareholders revolt

Shareholder groups are demanding more detailed, short-term emission reduction timelines from mining companies, though they have not yet defeated climate plans they deem inadequate.

"Shareholder pressure is a real thing within the decision-making chain, for sure," Diego Ibarra, the managing director of sustainability solutions for Engie Impact's Americas division, said in an interview. "Today, we are in a perfect storm. The pressure is coming from all directions to mining companies, from shareholders certainly, but from regulators, end consumers, the value chain, the community, everybody."

Glencore's climate plan was approved by 76.3% of shareholders on April 28, a decline from the 94.4% of votes it received the year prior. Multiple groups urged shareholders to vote down the plan, including the Australasian Centre for Corporate Responsibility, or ACCR, a research and shareholder advocacy organization that tracks Australian Securities Exchange-listed companies' climate plans.

"The question that we have raised is, how does the company reconcile its coal expansions with its plan for a managed decline of its coal assets?" Dan Gocher, director of climate and the environment at ACCR, said in an interview. "We have concluded that it looks like their production is not aligned with the 1.5-degree [Celsius] pathway, which is what they're telling their shareholders."

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S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.

S&P Global Trucost is part of S&P Global Sustainable1.

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