Miners’ troubles show need for climate ‘bad banks’

You can’t please all of the people all of the time. Except if you’re Anglo American or other miners with thermal coal assets: then you seemingly can’t please all of the people any of the time.

Anglo did win some ESG plaudits for its plans to spin off its remaining South African thermal coal mines into a Johannesburg-listed company called Thungela. It also took sustainability brickbats from those who saw it cutting loose a problem to its shareholders.

Boatman Capital, the short selling research group, this week questioned assumptions around rehabilitation of Thungela’s mines, arguing new regulations could nearly triple costs to $1.4bn wiping out the company’s value. South Africa’s newest coal miner was always going to have a turbulent start as international investors scarpered: its London-listed shares dropped nearly 25 per cent on Monday’s debut before jumping on Tuesday.

This troubled separation adds to a sense that a different model is needed, what some in the industry think of as a “bad bank” structure to manage the demise of pariah climate assets.

The miners are just the canary in this particular thermal coal mine. Divestment and exit policies, from investors and financiers, have made coal largely uninvestable in western finance, and uncomfortable to hold for the big listed miners. Glencore is unusual in keeping coal, with plans to run its production down by 2050, a position that could still come under pressure. 

As the transition to net zero accelerates, more and more assets will become “stranded”: not just in terms of oil and gas left in the ground but in terms of assets with no good owner from the point of view of the markets and the planet, whether that be mines, associated rail and port infrastructure or oil and gas production.

True, Anglo sent Thungela on its way with no debt, a hefty endowment and protection against a sliding coal price. The mines stay in the listed sector rather than disappearing into the shadows of private ownership, whether private investors or state-backed enterprises from countries like China.

But the environmental impact looks, at best, neutral. In fact, the new company seems more likely to try to lengthen the mines’ lives, currently only 5-11 years. And a smaller company is less able to handle the rehabilitation costs, which are uncertain. 

What’s needed, argues Tim Buckley at the Institute for Energy Economics and Financial Analysis, is an alternative to the bald options of divest or retain, one with the right funding, transparency and corporate governance and that recognises that this will be a 15-year process. 

Just as financial institutions turned to bad banks to manage toxic assets in the aftermath of the financial crisis, the miners need a way to quarantine theirs. This could keep the assets tied to the deep pockets and (one would hope) higher standards of the global listed sector but separate them from commodities like copper, nickel and cobalt, which the world needs more of in the climate transition.

It is a structure that industry chatter suggests is being considered by some miners and their advisers, possibly with the involvement of outside investors chosen for their environmental credibility. 

Sustainably minded investors would need to sign up to a structure that keeps coal, and ultimately other fossil fuels, associated with companies they’re invested in. And there is certainly a credibility gap to bridge in ensuring that mines are run off to schedule, that sinking funds for rehabilitation are untouchable and that communities are properly supported. This could involve some public-sector involvement, argues Ben Caldecott at the Oxford Sustainable Finance Programme. 

It might ultimately need to. The understandable ambivalence of some jurisdictions like South Africa or Australia to the idea of putting coal mines into run-off, with jobs and communities at stake, has been a complicating factor for miners. That has included discouraging progressive rehabilitation as sites are mined and even allowing smaller companies to tap supposedly ringfenced clean-up funds, says Buckley. 

But Anglo isn’t alone in battling to figure out what to do with its coal. And a robust bad bank model could find itself in demand far beyond mining in years to come.

helen.thomas@ft.com
@helentbiz

Climate Capital

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