Glencore bows to climate lobby and caps coal production
Matthew StevensColumnist
Updated Feb 20, 2019 — 6.40pm, first published at 6.25pm
Australia's biggest coal producer Glencore has bowed to pressure from the global anti-coal lobby and will cap coal production at 2019 levels in what is arguably the most significant and unlikely victory yet for the global and local anti-coal movement.
Having spent $US2.7 billion over the past two years adding critical mass to its Australian thermal coal business, the famously aggressive Swiss-based miner and commodities trader has now been convinced to wave the white flag on growth.
Glencore revealed its back-flip on coal as a growth story as it announced its 2018 full-year results in London on Wednesday evening.
Glencore boss Ivan Glasenberg has been one the strongest global advocates for coal. Simon Dawson
Glencore has been corralled into the climate concession predominantly by Climate Action 100+, an organisation that represents 300 of the world's most powerful investors who collectively have more than $US32 trillion ($45 trillion) under management.
The miner's concession will cap production at 145 million tonnes annually and will most likely lead to a steady decline in production from 2022-23 as some of its more mature Australian operations are retired.
Glencore chief executive Ivan Glasenberg has been one the strongest global advocates for coal investing $US2.7 billion to win a share of Rio Tinto's Australian assets in the NSW Hunter Valley and Queensland and a further $US845 million on the company's pre-existing local coal assets. The company's cap on production will also be imposed on its South African and Colombian mines.
"To meet the growing needs of a lower carbon economy, Glencore aims to prioritise its capital investment to grow production of commodities essential to the energy and mobility transition and to limit its coal production capacity broadly to current levels," Glencore said in a statement.
The move comes as the national debate over coal mining heats up after the CFMEU took on the Queensland Labor government this week over the stalled progress of Adani Mining's Carmichael coal project and a court ruling blocking a new coal mine in NSW. The NSW court said the mine near Gloucester on the state's mid-north coast should not go ahead because it would increase greenhouse gas emissions.
There are two caveats to Glencore's stand-still commitment. The miner will be able to buy out partners in its coal joint ventures. And it will be able to acquire coal assets that improve its business but only if the portfolio is subsequently pared and capacity is reduced to at least 2019 level.
Glencore has also agreed to increase the breadth of its carbon emissions disclosure, to include internal projections of scope three emissions in the disclosures carried in its annual sustainability report, and to review memberships of organisations whose public positions serve to undermine support for the Paris agreement on climate change and its goals.
The most likely target of this review would be the World Coal Association.
Glencore is a keystone member of the WCA and this commitment might well see Glencore follow BHP's lead in surrendering its membership because of a misalignment on climate policy.
The statement of intent that Glencore issued on Wednesday night suggests that this new prejudice against coal will likely shape all future investment decisions.
Glencore says this means it will prioritise investments in its minerals business over any and all future coal options.
On an analysts' tour of the company's newly acquired Hunter Valley operations in NSW, Glencore indicated that, without investment in replacement capacity, its coal production would naturally drift to about 120mtpa from the mid-2020s.
Carbon empire
Coal is Australia's biggest export earner and Glencore is the biggest contributor by volume and the second biggest by value to that success story.
While Glencore owns thermal coal production in three countries, Australia is the core of a carbon empire that commands 3.4 billon tonnes of marketable coal reserves and 38 billion tonnes of reserves globally.
Of the 12 big mining hubs that generate an estimated 80 per cent of its top line coal earnings last year, nine are Australian complexes.
Glencore owns 14 coal operations in Australia and production this year is expected to grow by nearly 20 per cent to hit 104 million tonnes. The business employs 8700 people and last year spent $6.1 billion here on wages, salaries and other goods and services.
Glencore's concession lands as new fault lines in long-established Australian political alliances emerged this week over coal mining.
The Queensland branch of the CFMEU is moving to secure pre-election commitments in support of Adani's new coal mine from selected Labor candidates in the next federal election and it has taken exception with the state Labor government's efforts to manage a "just transition" away from the coal industry.
Matthew Stevens writes on business, specialising in mining, energy and opinion. Matthew is a senior business writer and columnist. Email Matthew at matthew.stevens@afr.com.au