Glencore’s Coal Future Burns Bright – by David Fickling (Bloomberg News – June 12, 2017)

Is Glencore Plc’s last-minute bid for Rio Tinto Group’s Australian thermal coal assets about quantity, or quality? It’s a bit of both. With a tenement footprint that’s more or less surrounded by Glencore’s own mines, Rio Tinto’s Hunter Valley pits have long been an obvious target for the trader.

In volume terms, the $2.55 billion offer looks like the sort of deal that typically went down a decade ago, when the thermal coal used in power stations was a hot commodity and the likes of Rio Tinto and Anglo American Plc were looking to add assets, rather than exit ones still on their books.

Glencore is by far the biggest coal miner in the Hunter Valley, the region north of Sydney that supplies the world’s biggest coal export harbor at Newcastle. But its mines are rapidly depleting, and will run out in about a decade at current production rates. Add Rio Tinto’s vast resource base and lower output pace, and you could comfortably extend that deadline into the mid-2030s or beyond.

Hang on, though. Won’t the world have stopped burning coal by the mid-2030s? Well, not quite. While coal is in a long-term decline, even the more aggressive decarbonization scenarios examined by the Intergovernmental Panel on Climate Change see it providing 10 percent to 14 percent of the world’s primary energy by 2050 — well down from about 30 percent at present, but still enough to represent a significant lump of carbon.

The bullish argument for Australia’s coal industry has long been that many of its mines produce higher-quality product than the stuff being dug up in China, India and Southeast Asia, and will thus remain open in that 10 to 14 percent slice even as lower-quality pits are shut down.

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