Future-Facing Commodities

The new buzz expression for Australian mining companies that are leaving fossil fuel assets behind to chase greater profits is: “future facing commodities.” No virtue signaling here — it’s all about long-term shareholder value. CEO Mike Henry told a Sept. 8 shareholder call: “The divestment of our petroleum business and some of our smaller coal assets wasn’t for the purposes of decarbonization. This was all about shareholder value and risk.”

Electrification and decarbonization are seen as unstoppable megatrends that will impact on medium to long term margins. Not only is there gold in them there hills; there’s copper, cobalt, nickel, and potash. Now, that is a portfolio of future facing commodities that can navigate the energy transition.

“Within 5 to 10 years we’ll have a substantial potash business plus more nickel and copper production, which will give us plenty of diversification,” Henry said.

Harriet Kater, Climate Lead for Australia at the Australasian Centre for Corporate Responsibility, told S&P Global Commodity Insights that it’s critical to get out of fossil fuel entanglements now, while it’s easy. “We are nearing a stage where divesting oil and gas assets will become harder,” said Kater. “BHP managed to get out before the music stopped this time, unlike its attempted divestment of the Mt Arthur thermal coal mine.”

A recent report from the Institute for Energy Economics and Financial Analysis (IEEFA) found that once the current high level of coal exports peaks, the decline of exports will be rapid. Earlier than expected closures of domestic coal-fired power stations coupled with the pivot towards green energy by Australia’s export markets will lead to a decline in demand from Australia’s most established export destinations — Japan, South Korea, and Taiwan.

“Following the Russian invasion of Ukraine in February 2022, European imports of coal from exporting nations such as Australia have risen in a bid to replace Russian coal and gas. However, this will not mark the start of a renaissance for coal-fired power. Key financial institutions such as JPMorgan Chase, BlackRock and Moody’s have concluded that heightened energy security concerns and record fossil fuel prices will only accelerate the transition away from thermal coal.”

“Demand for Australian thermal coal will be set by the policies and actions of governments and companies in coal-importing Asian nations.”

BHP has made the right decision and will be followed by others. Who will be left holding the coal parcel when the music stops this time?


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