- Miners are struggling to fund expansion plans
- Steam coal costs more than coking coal after the price increase
- Most Western bankers are leaving the coal industry
LONDON, Nov. 24 (TASR) – It’s the best of times, it’s the worst of times. At least when it comes to coal mining.
After years of decline, demand for the polluting fossil fuel has skyrocketed this year as Europe struggles to replace Russian gas and coal miners make their living by fist.
As coal prices hit record highs, companies would normally expand operations, but projects remain on the table as most Western banks are delivering on climate pledges to limit lending to the sector, according to a dozen mining company executives and investors.
“Now when you do business with a bank, it’s easier. If you want to build a new mine, forget it, it’s become impossible,” said Gerhard Ziems, chief financial officer of Australian coal mining company Coronado Global Resources Inc (CRN). AXE).
Demand for fossil fuels is so strong that some miners say they are instead selling coking coal, which is used by steelmakers to power companies. Low-grade steam coal from power plants was traded for the first time in June via coking coal.
“It’s a crazy situation,” Coronado’s Ziems said, comparing it to silver trading at a higher price than gold.
Benchmark Australian thermal coal from Newcastle fell to around $50 per tonne in early 2020 and rose to over $150 per tonne in early 2022. It then rose to a record high of over $400 per tonne in September as countries desperately sought alternatives to Russian gas. .
However, as Western banks are pressured by shareholders to demonstrate action on climate change, coal managers must seek alternative financing options to take advantage of the favorable environment via public markets, upfront financing, trading houses, private equity firms and mutual funds.
For some, it’s even just a matter of finding a lender for basic financial services.
Shortly after North American mining group Bens Creek Group ( BENB.L ) listed on London’s AIM last October, Lloyds Banking Group ( LLOY.L ) withdrew its banking services from the company due to a change in coal policy.
Lloyds announced in February that it would stop financing miners who derive more than 5% of their sales from thermal coal by the end of this year and would stop supplying general banks with coking coal for new customers.
It took months and dozens of refusals for Bens Creek executives to open a bank account with a State Bank of India (SBI.NS) branch in the UK, Chief Executive Adam Wilson told Reuters.
“Five years ago nobody had these problems,” he said.
Lloyds declined to comment on individual customer relationships.
Similarly, Minergy Limited ( MIN.BT ), a Botswana-listed startup looking to fund its expansion plans.
“We are currently evaluating all options, but commercial banking is not necessarily available,” said Morne du Plessis, Minerga’s chief executive.
The company is now trying to reduce its debt and fund its project to double annual mining capacity to around 3 million tonnes by selling more shares and listing on the London Stock Exchange over the next year.
Du Plessis said Minergy is struggling to secure basic banking services such as overdrafts or loans to buy vehicles. “Because we’re in the coal industry, because we’re a start-up company, they wouldn’t even consider it,” he said.
Despite pressure on Western lenders, global investment in coal supplies is expected to rise about 10% to $116 billion this year, led by China, the International Energy Agency said.
Led mostly by China, this year’s coal investments are expected to match those of 2015, the year governments signed the Paris Climate Agreement, which aims to keep global warming well below 2 degrees Celsius above pre-industrial levels.
But analysts say China consumes most of the coal it produces, so increased domestic production is unlikely to have a major impact on the amount of coal traded in the world market — or its current high price.
With difficulty raising funds from Western banks, miners outside of China have turned more to stock markets this year.
As of Nov. 11, they had raised $2.2 billion through the public markets, up from $1.3 billion over the same period in 2021 and the highest since 2017, data from Refinitiv showed.
But analysts said the increase wasn’t enough to offset the billions of dollars in loans from Western banks that have disappeared in recent years.
Environmental lobby group Reclaim Finance says 96 banks currently have policies to restrict financial services to the coal sector.
The largest Western lender to miners in 2020 was Deutsche Bank ( DBKGn.DE ) at $538 million, followed by Citi at $300 million. By 2021, that amount had dropped to $255 million for Deutsche and $218 million for Citi, according to data compiled by Reclaim Finance.
“When it comes to thermal coal mining, every coal mining transaction requires more rigorous environmental risk screening,” said a spokesman for Deutsche Bank, adding that the bank is updating its coal policy.
Now companies that depend on coal for more than 50% of their revenue must demonstrate credible diversification plans to receive financing from Deutsche Bank. Companies without such plans are to disappear from the bank’s portfolio by 2025, the spokesman said.
Citi declined to comment.
A number of banks including ANZ (ANZ.AX), Bank of Montreal (BMO.TO), Barclays (BARC.L), BNP Paribas (BNPP.PA), Commonwealth Bank (CBA.AX), Santander (SAN.MC ), Standard Chartered (STAN.L), RBC (RY.TO) and UniCredit (CRDI.MI) funded coal miners in 2020 but not in 2021, data from Reclaim Finance showed.
Minergy’s Du Plessis said since coal prices have skyrocketed there have been several talks about potential sources of money, from equity investors to debt refinancing proposals to trade finance.
“There’s an openness to discussing it because charcoal is the buzzword now, so the conversation is easier. Did something come up? No,” he said.
Bens Creek listed shares in part because banks were unwilling to support an expansion in coal mining, CEO Wilson said.
The company plans to double production next year to about 1 million tonnes, although Wilson doesn’t expect current high prices to provide a significant boost to coal production, as the development of new mines and the infrastructure to support them, such as railroads, is unlikely given the uncertainty Time schedule. -Future prospects for coal.
Some investors involved in raising capital and listing coal companies agree that long-term plans for miners are a thing of the past, but say short-term returns are attractive.
“Historically, coal CEOs have not wanted to return cash to shareholders to use to expand production or buy competitors,” said Jonathan Barrett, chief investment officer at Luminus Management, which owns shares in U.S. coal mine Arch Resources Inc (ARCH). . N).
“But in the last year or two they’ve realized that the best way to create shareholder value is to give back cash and not expand because that’s a much better and less risky use of capital,” he said.
Barrett and his business partner Robert Felice launched the Iris TIME fund in October, which is backed by wealthy families to target unfashionable sectors with attractive cash flows like coal.
The industry’s big dividends and stock buyback programs mean that in some cases, you could recoup your entire capital investment in about two years, Barrett said.
“Most of these people are making cash and trying to reduce their reliance on banks because they’ve seen how quickly banks are entering the industry.”
Reporting by Sarah McFarlane and Clara Denin; Editing by Veronica Brown and David Clarke
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