Rio Tinto’s Coal Canary Stops Tweeting – by David Fickling (Bloomberg News – March 28, 2018)

Prices at Australia’s Newcastle port, the largest export harbor for the thermal coal used in power generation, have held above $90 a metric ton for eight months, the best run since the market peaked between 2010 and 2012, only dropping below that level this week.

Glencore Plc’s energy business — essentially a coal-mining operation with a droplet of oil thrown in 1 — generated as much profit in 2017 as in the previous three years put together, and accounted for a quarter of group earnings. This month is one of the dozen best for coal deal-making activity since the start of 2006, data compiled by Bloomberg show.

That could make Rio Tinto Group’s decision to exit the last of its coal mines seem quixotic at best. While the sales of its Kestrel and Hail Creek mines and Valeria and Winchester South projects will generate about $4.15 billion (enough on paper to leave Rio debt-free), they’ll make it an increasingly iron ore-dependent business.

Skeptics should reflect, though, that miners invest for decades rather than years at a time. Viewed through that lens, the current strength of the coal market looks more like a selling opportunity than a portent.

For one thing, the diversification benefits touted by Goldman Sachs Group Inc. are somewhat limited. All the mines that Rio Tinto is selling produce coking coal, a high-value variant used in steelmaking. As Gadfly has argued before, coke’s specialized use probably guarantees it a more promising future than thermal coal — but it’s hardly an insurance policy against a downturn in iron ore.

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