Disinvestment in coal assets by two major firms this week was not a threat to power generation in South Africa and coal would be in the mix for the foreseeable future, analysts said last week. Picture: Henk Kruger
JOHANNESBURG – DISINVESTMENT in coal assets by two major firms this week was not a threat to power generation in South Africa and coal would be in the mix for the foreseeable future, analysts said last week.
They said the the move away from thermal coal was simply a climate change-forced decision and a gradual transition which recognised the country’s decarbonisation commitments as per Paris Accord. The country was crafting a pathway to a transition to renewable energy by 2030.
Last week, two major developments occurred in the space of coal mining in South Africa.
Anglo American announced plans to spin off its thermal coal operations to Thungela Resources following years of pursuing a responsible transition away from fossil fuels. Anglo said the demerger of its coal operations recognised the diverse range of views held by its shareholders in relation to thermal coal as the world transitions towards a low-carbon economy.
In addition, diversified miner Exxaro Resources signed an agreement to sell three non-core coal mining operations to a black economic empowerment group, while the disposal for the Leeuwpan coal mine is ongoing. Basically, these investment decisions will help these mining giants to attract new shareholders and to access new sources of capital.
On Friday, Anchor Capital’s investment analyst, Seleho Tsatsi said thermal coal remained an important part of Exxaro’s business, although it announced a small disposal constituting 5 percent of their market capitalisation.
“But the trend definitely is for the large global diversified miners to move away from thermal coal over time,” Tsatsi said. “We’ve seen South32, Anglo American, BHP Billiton and Glencore make efforts to reduce or limit their thermal coal exposure. Companies like Exxaro, Seriti and Wescoal continue to have meaningful thermal coal exposure and act as providers of thermal coal to Eskom.”
Old Mutual’s head of responsible investment Jon Duncan said divesting from thermal coal was a global trend as long-term climate-conscious investors were moving to decarbonise their holdings.
Duncan said the decarbonisation of countries over the next years was going to be different as developed economies would go quickly, while developing countries like South Africa would be on a gradual path. “Coal investment is declining and we are seeing this being met by a growing share of renewable energy investment,” Duncan said.
“What that means for local investors in energy infrastructure is an increasing appetite for renewable energy assets and a decline in appetite from coal-fired power plants. However, we know that coal will have an active role in South Africa’s energy mix until the mid-2030s. So Exxaro and Thungela are going to have an important role to play, with the primary off-take going to Eskom,” he said.
Last month, Moody’s Investor Services warned that South African banks were facing environmental risks through extensive lending to the mining industry. Moody’s said many of Africa’s largest industries, such as oil and gas, mining and transport, faced high environmental risks, given their high exposure to carbon transition or physical climate risk.
Standard Bank, South Africa’s biggest bank, requires all its thermal coal mining clients to comply with the domestic mining laws and license provisions, as well as the environmental, social and governance laws and regulations of the countries within which they operate
.“Standard Bank’s financing of thermal coal mining is expected to reduce over time in line with the expected reduction in the contribution of thermal coal to the energy mix of the countries within which we operate as they pursue the implementation of a just transition to reduced thermal, coal-derived energy supply, as countries implement their national determined contributions to reducing GHG emissions as per the Paris Agreement.”
Absa has also said it would only fund new coal-fired electricity generation under “extenuating circumstances” and strict guidelines, assessing against criteria including country commitments in national development plans and World Bank guidelines.