X2 Resources and Greenpeace have their reasons for acquiring coal assets amid low commodity prices and climate concerns
By Megan Darby
Coal prices are at rock bottom and demand growth from emerging economies is slowing down.
The dirty fuel is public enemy number one as governments work towards a global deal in Paris to tackle climate change.
In these conditions, who would buy a coal mine? In the past week, two answers have emerged to that question.
One is private investment firm X2 Resources, headed by former Xstrata boss Mick Davis, eying up two Rio Tinto mines in Australia.
The other is Greenpeace Sweden, setting its sights on Vattenfall’s lignite (brown coal) operations in Germany.
Their motivations could not be more different.
The numbers are clear: 80% of known coal reserves are unburnable under the internationally agreed 2C limit on global warming.
An economic slowdown in China – coupled with outrage at toxic air pollution – has crimped demand, leaving the seaborne coal market oversupplied. Prices are languishing below US$60 a tonne, down from a peak of nearly $140 in 2010. Mining giants like Glencore and Peabody are feeling the pain.
Meanwhile, ethical investors are increasingly wary of coal, due to its clash with climate goals. From a handful of universities and church groups to Norway’s US$900 billion sovereign wealth fund, divestment is entering the mainstream.
Promoted by think tank Carbon Tracker, the idea that fossil fuel assets could be devalued by climate regulations and low carbon innovation has caught on with analysts at private banks like HSBC.
Bank of England governor Mark Carney this month warned such climate-related risks threatened financial stability.
For India and emerging economies of southeast Asia, with hundreds of millions of people off-grid, all this is offset by a hunger for cheap electricity.
Many countries outlined the importance of coal-fired generation in their national contributions to a UN climate deal. India promised to improve plant efficiency, but said coal – 61% of today’s mix – would “continue to dominate power generation in future”. Low coal prices make it harder for renewable sources to compete.
Miners evidently hope that growing demand will trump the UN’s 2C limit. And they assume carbon capture and storage (CCS) can extend coal’s legitimate lifespan, despite limited success in taking the technology to scale.
Fatih Birol, head of the International Energy Agency, warned at a recent G20 energy meeting the sector has five years to prove CCS is viable.
“Demand for coal will be depending on whether or not the coal industry will be able to make use of the clean-coal technologies, including carbon capture and storage,” he said.
Some environmentalists are worried that a demand-side approach to tackling emissions will not work fast enough. Increasingly, campaigners are directly challenging the suppliers of fossil fuels.
Anote Tong, president of Kiribati, a low-lying Pacific island state menaced by rising seas, has called for a moratorium on new mines.
X2 has held a multi-billion dollar kitty for 18 months and been scouting for the right mining assets to make a go of.
In a rare interview granted to Canada’s Globe and Mail in March, Davis made clear he wanted to build a business for the long term. “I think there is a great opportunity to capture value where the market has lost its conviction,” he said.
The Financial Times in June speculated X2’s first transaction was likely to be in coal – familiar territory for Davis from his Xstrata days. While there is still no confirmed deal, the latest from Bloomberg appears to bear that out.
X2 is the last bidder interested in two Rio mines in New South Wales, insiders told the newswire, at a pricetag of A$3 billion (US$2.2bn). The deal could go through by the year’s end.
Michael Liebreich, chairman at Bloomberg New Energy Finance, told Climate Home private equity companies were more likely to buy mines than publicly listed firms.
He said: “Public companies, to own an asset that gets you a huge amount of pressure, that gets protesters outside your annual meeting… if it is not obviously profitable, why would you do it?”
Industry publication Mining.com described the rumoured bid as a “contrarian gamble”, coming as Australian producers are tightening their belts.
With the Globe and Mail apparently more interested in Davis’s diet – he lost 121 pounds and beat diabetes – than climate change, it is not clear how he perceives carbon risk.
The mining mogul’s PR gatekeepers at Aura Financial declined Climate Home requests for an interview.
As for Greenpeace Sweden, its idea is to acquire some of the most polluting assets in Europe and shut them down.
The state-owned Vattenfall is selling opencast lignite mines and 8GW worth of power stations in Germany to green its image. Together, these emit more than the whole of Sweden.
Thrown into the deal are advanced plans for five new mines, which campaigners fear will go ahead under another owner – Czech energy group CEZ has expressed an interest.
Annika Jacobson, head of Greenpeace Sweden, told Climate Home: “We can’t just sit and watch this happen.”
At an estimated €2-3 billion (US$2.3-3.4bn), the package won’t come cheap – although Jacobson disputed that valuation.
“I believe in reality it will be much lower,” she said. “If you look at the climate legislation that needs to happen… that would affect the future value of this business.”
Not known for its business acumen, Greenpeace would be looking to work with partners and local authorities to help the region go green. It will present its intentions to Vattenfall on 20 October.
Jacobson added: “We are not interested in just shutting down these coal power plants and calling it a day. We are interested in a transition to renewable energy. Our intention is to make sure this transition happens in a sustainable way.”
A spokesperson for Vattenfall said the process would be open to “all serious bids”. Watch this space.