THE BIG MINING HOUSES APPEAR ONLY TOO KEEN TO SELL THEIR COAL OPERATIONS. IS THIS A GOOD INVESTMENT ‑ OR A HOSPITAL PASS?
Coal is dirty business, and the big mining houses are only too keen to get out of it. The reasons are clear: investors and banks are under pressure to stop supporting industries that harm the environment. It’s a global trend and in the past year alone, all major local banks announced they would no longer finance coal projects. This came after considerable lobbying by environmental groups.
So why are black entrepreneurs so keen on coal? In September this year, it was announced that Australian mining group
South32 would offload its South African coal assets to Seriti Resources, headed by Mike Teke. By some accounts, South32 is willing to virtually give the assets away, provided Seriti takes responsibility for the roughly R11 billion cost of rehabilitating the mines. Would this explain the apparent eagerness of the big mining houses to ditch coal?
Almost certainly. If so, are black entrepreneurs being handed a hospital pass by the mining houses?
That’s more complicated. For one thing, the buyers of coal assets understand
the gathering clouds of environmental activism and the costs of rehabilitating mines. This is being factored into the purchase price of coal assets, as is the higher cost of capital for coal deals. Yet black entrepreneurs seem undeterred.
Tracey Davies of shareholder activist group Just Share argues that anyone investing in coal risks being lumped with “stranded assets” that may not be able to achieve their full economic lives due to regulatory, economic or physical changes as a result of climate change and a transition to a low-carbon economy.
“We think it’s a bit cynical the way these coal transactions are being couched as commercial black empowerment deals, when surely the BEE shareholders understand the risks to which they’re being exposed,” says Davies.
Given the obvious risks, coal certainly isn’t a long-term play in anyone’s books. International pressure for lower carbon emissions suggests coal may not be with us as a viable industry for much longer. But how much longer? Perhaps 20 years at the outside, but more likely less than that. Energy expert Des Muller says the costs of adopting “clean coal” technologies to fully remove toxic and carbon emissions would render coal mining uneconomic, so most mines are employing fairly rudimentary technologies that address the noxious gases, but don’t fully remove carbon. That will likely have to change in the years ahead.
It’s not just environmental groups pressuring for a move away from carbon-
heavy industries. The bigger mining houses, eager to demonstrate their green credentials, have become powerful advocates for sustainable mining. “We’re already seeing the impact on our coal market in terms of export prices out of SA,” said South32 Chief Operating Officer Mike Fraser, speaking at the Joburg Indaba Summit in early October. “We face a number of other challenges in terms of community unrest, social pressure and the availability of power. If we don’t manage these, they’ll detract from us delivering. Last year we saw an escalation of protests outside mines and an increase in illegal mining activity. We can’t continue to do business this way. Unrest will become more frequent unless we find a way forward; we need to remain committed to finding sustainable ways to address the concerns of communities.”
That said, there’s no doubt coal has a future in SA mining – which is where Eskom enters the picture. Some 90% of
Eskom’s power comes from 15 coal-fired power stations. It’s far cheaper to produce than renewable energy and essential for the stability of the country’s power grid. But if it’s to have any long-term future, coal mines are going to have to clean up their act and install carbon-reducing technologies.
“We’ll have coal for the rest of our lives, but coal must invest in clean technologies,” said Mines and Energy Minister Gwede Mantashe at the Joburg Indaba Summit. “I’m fundamental about the security of energy supply in SA while we meet our commitments regarding climate change. Clean coal is the way to go.”
Also speaking at the Joburg Indaba Summit, Eskom’s Acting CEO Jabu Mabuza took a swipe at those who argued for removing coal from the country’s energy mix in favour of renewable energy. Eskom was purchasing renewable energy at 235c per kilowatt hour (kWh), but only recovering 90c/kWh from customers. This
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