The recent transaction concluded between two mining giants, Teck Resources and Glencore, is an opportunity to once again paraphrase a famous phrase: the announcement of the death of coal is greatly exaggerated.
Glencore paid US6.9 billion to acquire a 77% stake in the coal division of Canada’s Teck, known as Elk Valley Resources. With the participation of minority shareholders, the transaction values the company at US$9 billion.
Nearly US$10 billion for a declining mineral that the world wants to get rid of as quickly as possible? Yes, and it’s not expensive, according to several analysts.
Coal consumption worldwide continues to increase and is currently at a record level. According to the International Energy Agency, total consumption increased by 3.3% in 2022, its highest level since 2013.
The increase in demand comes from developing countries, where coal consumption is increasing year after year.
In richer countries, which have managed to reduce their coal consumption in recent years, this progress has been halted in 2022. The European Union increased its coal consumption by 2% last year, due of the cessation of Russian gas deliveries after the invasion of Ukraine.
This means that coal is still essential to global economic growth. All uses combined, coal remains the second most consumed source of energy in the world, after oil.
It is used to produce electricity and heat in several countries around the world, including Canada, where there are other options. Coal is also used to fuel heavy industry such as steelworks and cement factories. A third of the world’s electricity is produced with coal, and 70% of all steel production in the world requires coal.
If the world wants to get rid of it so much, it is because coal is the most polluting of fossil fuels. According to the U.S. Department of Energy, burning coal emits 100 kg of CO2 per million BTUs produced, compared to 73 for oil and 53 for natural gas. (BTU, for British Thermal Unit, is a unit of measurement for energy that is equivalent to 0.298 watts.)
Coal’s heavy environmental footprint is behind the decision by Teck Resources executives to sell their coal division to focus on their production of copper and zinc, metals that are at the heart of the energy transition because they enter into the construction of electric vehicles. It goes down well with their shareholders.
Canadian mines have a better environmental record than those of their competitors elsewhere in the world. The steelmaking coal that comes out sells at a good price on the market. Glencore is a criticized company, but its leaders know how to count. They are betting that energy transition or not, coal will remain essential for decades to come. Or at least long enough to make their investment profitable.
