Largest Mining Co: “Coal Is Going To Decline. And Frankly It Should”

In a most unusual admission for a mining company executive, the chief executive of the coal division of one of the world’s largest mining companies, Australia-based BHP Billiton, has said that he believes the market for coal is going to decline because of environmental contraints, and that “frankly it should”.

In a presentation on the company’s sustainability strategy, BHP executive Marcus Randolph was reported as stating that it is clear there is an “absolute ceiling” on emissions that can be released into the atmosphere. He said that BHP’s internal target over the next 4 years is to maintain greenhouse gases below 2006 levels, even if a future government repealed Australia’s new carbon tax.

In an earlier statement reported in the Australian Financial Review, Randolph also stated that,

“In a carbon constrained world where energy coal is the biggest contributor to a carbon problem, how do you think this is going to evolve over a 30- to 40-year time horizon? You’d have to look at that and say on balance, I suspect, the usage of thermal coal is going to decline. And frankly it should.”

Randolph mentioned that he had his doubts that so-called clean coal technology would be enough to make coal a viable choice for power generation in the long term. He is not alone there. It’s very difficult to see how that amount of C02 could be captured and stored safely, and still be economically viable, on an annual basis.

However, having said this, Randolph has also explained to investors and analysts how the company is reinforcing infrastructure around its coal export terminal in Queensland, Australia, because of the increase in extreme weather that threatens the company’s assets. BHP Billiton owns and runs the Hay Point Services Coal Terminal, which is a big part of the biggest coal port in the world. Randolph said that as more intense cyclone events are seen in the area, “the vulnerability of one of these facilities to a cyclone is quite high”. Category 5 Tropical Cyclone Yasi hit Queensland early in 2011 and impacted coal operations in the state.

So, the company is in a bit of a bind here. It recognises coal–burning, and specifically coal exporting from Australia for coal–burning in other countries, is directly causing more extreme weather events, but it’s answer in the short term is to strengthen infrastructure to allow those exports to continue unimpeded. Obviously, there is something seriously wrong with this picture  that will have to change sooner rather than later.

In addition, I’d say many investors in coal companies must be asking themselves some pretty tough questions about the future of coal, and of their investments. What do you think? I wonder how many large superannuation funds still have people’s lfie savings tied up in coal mining companies?

Image CC licensed by placid casual: Coal-fired power station.