Twenty years after the end of steel, the Hunter Valley stares at the end of coal. The signs have been there, but the ringing of the last drinks’ bell came on February 20 from Glencore, the valley’s biggest miner. Read the article in the Newcastle Herald here
Just four days before the Glencore announcement, the highly influential British newspaper The Financial Times published a detailed account of the pressure Glencore faces as a result of its dreadful ESG metrics. ESG metrics are the scores a company receives from global ratings organisations for environmental, social and governance performance.
Big investors like AustralianSuper, the endowment fund of the Church of England and Norway’s sovereign wealth fund use ESG metrics to steer their money away from unethical activity. Coal mining scores poorly in ESC metrics because it is a major contributor to global warming.
So Glencore has a significant problem. Should ethical investors offload shares because Glencore’s poor ESG metrics persist, Glencore’s share price would fall, meaning capital losses for shareholders who maintain their investment with the firm. As well, bankers, also under pressure from ESG metrics, become reluctant to lend money to Glencore to re-finance its corporate debt, a mountain topping $20 billion at the end of 2018.
The personal views of Glencore’s owners and managers about whether fossil fuel production causes global warming become irrelevant. Now that the investment community is moving en masse against fossil fuels, this public company is forced to abide by new community standards.
Which is the reason global miner Rio Tinto sold its Hunter coal assets to the Chinese miner Yancoal in 2017. Rio Tinto wants to be seen as an ethical company, ensuring governments and communities around the world will welcome its presence for decades hence, with investors and banks happy to park their money in Rio mines.
The Rio Tinto sell-off means Hunter coal production is now dominated by two foreign companies: Glencore and Yancoal. Glencore is listed on the London stock exchange with significant Swiss and South African ownership. Yancoal is a listed Hong Kong company, although its shares are barely traded, its ownership dominated by a single giant Chinese state-owned enterprise. This detachment from the global investor means, unlike Glencore, Yancoal is able to palm off the scrutiny of ESG metrics.
Glencore controls operations at Ulan, Bulga, Mount Owen, Ravensworth and Mangoola (near Denman), while Yancoal controls Mount Thorley-Warkworth and Moolarben (west of Wollar). Then Glencore and Yancoal run the giant Hunter Valley Operations at Lemington as a joint venture. There was a time in Australia when such a concentration of foreign ownership of a key national economic sector would have raised howls of protest.
So we now know the end of coal in the Hunter is coming, forced not by inefficiency or scarcity – but by ethics.
The Hunter’s other sizable corporate miner is our old friend BHP which runs the giant Mt Arthur complex near Muswellbrook. As an Australian listed company BHP is the subject of detailed scrutiny of its environmental, social and governance performance by ratings agencies. Whether to hold Mt Arthur on its books is a question BHP managers are forced to revisit often – like a dog and its vomit.
So we now know the end of coal in the Hunter is coming, forced not by inefficiency or scarcity – but by ethics, by the need to address the reality of human-induced climate change, by the immorality of creating wealth at the expense of the harsh living conditions we force on generations to come.
The end, though, won’t be quick. When the corporations who feel the heat of ethical investors leave coal mining in the Hunter, there will still be those who operate outside the scrutiny of global ESG metrics, like Yancoal. And there will be the cowboys who ride in when the corporates depart, raiding surviving pits for easy gains.
What will it take, two decades? It’s a blink of an eye after more than two centuries of the presence of coal mining in our region. We need to accept the last drinks’ bell is ringing. The task ahead is daunting.