South32 has indicated it has no plans to follow the lead of its big brother BHP and set public targets on reducing so-called scope 3 greenhouse gas emissions produced by customers.
The diversified miner, spun out of BHP with what were considered non-core assets four years ago, on Monday declared that there is no substitute for coal in steelmaking and metallurgical coal is a big part of its future.
South32 said its previously stated bias to base metals in future investments didn’t exclude other commodities where it sees value.
Chief development officer Simon Collins told the Diggers & Dealers mining conference in Kalgoorlie that South32 was attracted to the fundamentals of its resurgent Illawarra coal operations in NSW and is poised to make a final investment decision on its Eagle Downs project in Queensland’s Bowen Basin in the first half of next financial year.
In an interview with The Australian Financial Review, Mr Collins said South32 took a 50 per cent stake in Eagle Downs alongside joint venture partner Aqulia Resources last year because it saw no substitute for metallurgical coal in the steelmaking process.
The Eagle Downs project has been in care and maintenance since late 2015 but is a fully permitted, partially developed mine with a 1.1 billion-tonne resource.
“We look at the lack of a substitute in steelmaking and we look at the requirements for steel in construction and in infrastructure developments across large parts of the world,” Mr Collins said.
“Obviously, if we can reduce carbon emissions associated with the production of metallurgical coal we will do that, but we certainly look at the commodity and see a robust outlook and believe we have a role to play in bringing it to market.”
Mr Collins wouldn’t comment on BHP’s recent pledge to set public targets for reducing scope 3 emissions that caught many in the mining industry off guard, but he suggested there was no need to set targets to improve outcomes.
“Talking beyond targets and the like, I think if you can do something to reduce impact, to improve outcomes then why wouldn’t you?” he said.
“The analogy I would draw is around modern slavery. It is something that we haven’t gone out and said we are going to eliminate it from our supply chains but what we are doing very purposefully is working with our vendors and suppliers and giving them the tools so that they can run their businesses differently because those are positive impacts that we can make and we can do that every day.”
The $14.9 billion miner is exiting thermal coal with the sale of its interests in South Africa but thinks demand for thermal coal will remain resilient in countries with relatively new coal-fired power plants and in countries that have planned to build additional capacity.
Mr Collins said the decision to divest its South African thermal coal business was motivated by the fundamentals of domestic coal supply there moreso than the conversation around emissions.
“Our exit there is driven largely by the fact that a cost-plus arrangement with the state utility is not going to give the sort of returns our investors expect, particularly when looking at that return through a South African country risk lens,” he said.
South32 is facing a big write-down on its South African Energy Coal assets before the expected sale of the underperforming business, which carried a book value of $US70 million at the half-year, some time in 2019-20.
Ironically, South32 has had to hose down reports it looked at the possibility of importing thermal coal from Indonesia for its Worsley alumina refinery in Western Australia amid concerns about the future of local supplier Griffin Coal.
The company said coal was an important part of the energy requirements for Worsley but it had “no plans to import coal at this time”.
Worsley is the only major South32 asset in WA, where it has been headquartered since being spun out of BHP.
Mr Collins, who is responsible for exploration, business development, M&A and divestments, said on Monday that he was moving to an office in Vancouver to support the company’s growing presence in North and South America.
He already oversees the company’s Brazil alumina joint venture and was instrumental in the $US1.4 billion acquisition last year of Arizona Mining, which included the high-grade zinc, lead and silver Hermosa project.
Mr Collins said Hermosa, near Tucson in the US, was one of the most exciting base metals projects in the world and provided the opportunity to leverage the company’s capabilities from its Cannington silver-lead-zinc mine in Queensland.
South32 expects to complete a pre-feasibility study on Hermosa before the end of 2019-20 after reporting a maiden mineral resource of 155 million tonnes averaging 3.39 per cent zinc, 3.67 per cent lead and 69 grams a tonne of silver for the project’s Taylor deposit.
Mr Collins also rates highly an option with Trilogy Metals to increase its interest in a big Alaskan land package to 50 per cent by committing $US150 million to the joint venture by early 2020.
The two known deposits in the land package are Arctic, a high-grade polymetallic resource, and Bornite, a large copper resource.
“If the Arctic deposit was anywhere else in the world it would have been mined years ago,” Mr Collins said.
“It is 40 million tonnes of 5 per cent copper equivalent although it is a zinc- dominant deposit. Those things don’t exist any more so it is a rare treat,” he said.
Mr Collins said South32 was "born diverse" and intended to stay that way with no plans to "shrink to greatness".
He told Diggers & Dealers the company had assessed more than 200 opportunities in the past four years and now had 20 active greenfield exploration projects in Australia, the Americas and Europe.News Source: Financial Review