Major Miners Exiting Coal, Ratcheting Up Use of Distributed, Renewable Energy
Some of the world's largest mining companies are exiting the coal business and ratcheting up their investments in metals and minerals that play a central role in the transition to a distributed, low- or even zero-carbon energy future.
They're also replacing natural gas power generation and rolling out solar-plus-storage power systems at mine sites, thereby contributing to achieving UN greenhouse gas (GHG) emissions reductions and climate change goals.
A lot of the action is taking place in Australia. Earlier this year, Peter Beaven, the chief financial officer of BHP, the world's largest mining company, led industry analysts to think that the multinational miner will exit the business of mining thermal coal. In April, BHP CEO Andrew Mackenzie announced the company was withdrawing from the World Coal Association due to differences over climate change policy.
Straightforward economics, as opposed to intangible, unaccounted for social or environmental impacts of thermal coal mining, along with pressure from institutional investors to decarbonize energy use, appear to be the main motivators. Managing an investment portfolio valued at some US$1 trillion, Norway's sovereign wealth fund recently announced it would "no longer invest in companies that mine more than 20 million metric tons of coal a year or generate more than 10 gigawatts (GW) of power from coal," according to an industry news report.
Mining sector clean energy development
BHP is an owner and operator of two coal mines: NSW Energy Coal in Australia and Cerrejón in Colombia. Deutsche Bank analysts recently highlighted that valuable tax losses associated with BHP operating its NSW Energy Coal mine are running out. The analysts (paywall) estimate that A$600 million of tax write-offs associated with BHP's coal mining assets in Australia could be used up within the next two years.
The analysts peg the value of BHP's thermal coal mining business at over A$2.5 billion. Still, that accounts for around just 3 percent of BHP's asset base and is expected to account for around 4 percent of its total earnings this year, according to analysts.
The world's second largest mining company, Rio Tinto has been the first major mining multinational to exit the coal mining business. Management in March 2018 announced the company had sold the 80 percent share of ownership in its last Australian coal mine, Kestrel, in a transaction valued at some A$2.25 billion. All told, Rio Tinto garnered some A$4.15 billion by selling its last three coal mines. In September, management announced it would use the proceeds to help carry out a share buyback that would return some A$3.2 billion of capital to the company's equity investors.
Expectations of significant growth
It's getting more difficult to insure the construction and operation of coal mines, as well. Melbourne-based QBE Insurance Group in May announced it would stop offering new insurance policies for thermal coals mines and coal-fired power plants so as to contribute to advancing the transition to a low-carbon economy and stem the tide of rising GHG emissions and global mean temperature.
Multinational reinsurance giant Zurich in November 2017 announced it would divest its investments and stop offering insurance to companies that rely on coal for more than half their annual revenues. Others have done similarly. All told, insurers had pulled some US$20 billion from these companies, according to a financial news report.
Major mining companies have been ratcheting up their investments in on-site, renewable power generation in parallel. Navigant Research expects significant growth in mining sector renewable energy use from this year on out to 2027. Navigant Research forecasts that mining sector participants' in digitally networked, low- or zero-emissions energy resources and technologies— solar PV, wind and battery energy storage— will nearly triple over the period. Growth will be fastest in the Asia-Pacific region, which is home to some of the world's largest mining sectors, China and India, as well as Australia.
Abandoned mines are being reclaimed, remediated and converted to renewable energy hubs, as well. A company called Genex is proposing to convert an abandoned, open pit gold mine in Australia to a pumped hydroelectric storage and solar power plant. Regional development agency the Northern Australian Infrastructure Fund has signed on to provide A$430 million to finance the project at the Kidston mine.