Miners are printing money from a business many are trying to exit: digging up thermal coal.
Prices for thermal coal, the variety burned to generate electricity, have shot to decade highs as supplies struggle to keep pace with demand from China and elsewhere during the global economic recovery. Analysts expect prices to stay elevated because concerns about the fuel’s contribution to climate change have made it increasingly difficult for miners to obtain permits or funding to dig more thermal coal out of the ground.
The rally is filling the pockets of miners including Glencore PLC, Peabody Energy Corp. and Australia’s Whitehaven Coal Ltd. The companies stuck with thermal coal despite pressure from environmentalists and Wall Street to abandon the fuel. The recent run-up in prices is also offering a parting gift to a clutch of miners, such as BHP Group Ltd. , that are committed to leaving the energy-coal sector behind.
Glencore, the biggest producer of thermal coal for export by sea, on Thursday posted record earnings of $8.7 billion in the first six months of 2021, up 79% from a year earlier. A decline in coal production offset the effect of rising prices, which began to surge late in the first half, but Glencore said the coal market would be a big moneymaker for the rest of the year.
“For a responsible operator, you can still make decent money off these mines,” said Sean Munsie, a portfolio manager at South African investor Allan Gray, which is a large outside shareholder in Glencore.