The high emissions intensity of thermal coal has seen investors grow sceptical, slowing down M&A with JSE-listed giants Anglo American and BHP disinvesting from the industry, according to the International Energy Agency (IEA).
“In recent years large, diversified mining companies such as BHP and Anglo American have been divesting from coal to focus on other commodities; therefore, smaller and coal-focused miners have been able to acquire these assets,” the IEA said in a new report.
“This shift has resulted in a slight decrease in market concentration, with specialised coal firms gaining a more prominent role. The market share of the four largest coal-mining companies declined from 37% in 2019 to an expected 29% in 2024. One notable exception is Glencore, a diversified miner that has increased its exposure to coal by acquiring 77% of Teck Resources’ coal operations.”
More than 90% of Glencore’s shareholders last year rejected the company’s plans to unbundle its coal and carbon steel business, essentially telling it to use windfalls from coal to fund its transition plans and return excess cash to shareholders.
Glencore in 2023 outlined plans to spin off its coal business, after acquiring the metallurgical coal business of Canadian company Teck, known as Elk Valley Resources, for $6.9bn.
Coal mining contributed almost a third of the group’s core earnings, generating $1.8bn in the six months ended June 2024.
Anglo American in November said it had agreed to sell the portfolio of steelmaking coal mines it operates in Australia to Peabody Energy for a cash consideration of up to $3.77bn.
The transaction was the latest step by Anglo CEO Duncan Wanblad to keep shareholders on his side after the group last year rebuffed a R700bn-plus buyout offer from mining BHP as unattractive and convoluted.
BHP, which longs for Anglo’s copper assets, last year completed the divestment of the Blackwater and Daunia mines to Whitehaven Coal.
The IEA said it has become more palatable for investors to invest in met coal assets.
“Transactions are focused more on assets producing met coal. From a producer’s perspective, the met coal market outlook for volumes and margins is more beneficial than for thermal coal, since alternatives, such as hydrogen, are not ready for the market yet while thermal coal already has suitable substitutes,” it said.
“The high emissions intensity of coal has led to a reluctance among investors to commit to continuous investment, especially in thermal coal, as the decarbonisation of electricity is progressing more rapidly than that of steel production.
“But even in the met coal sector, the brief periods of high margins have not been sufficient to stimulate significant new investment in mining operations, and hence progress in announced new projects has been very slow.”
The IEA said new projects face the issue that countries in the western hemisphere are committed to ambitious climate targets, which could induce lower demand for coal, with financial institutions looking to reduce their exposure to carbon-intensive projects due to environmental, social and governance concerns, making financing more difficult.
“For the same reasons, insurers show little interest in selling policies to coal projects, especially to newly developed ones. Consequently, premiums are severe, or coverage is not available at all.”
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