We’re expanding our core capabilities and evolving new ways to partner with you. Make sure you follow us at… https://t.co/g1VkE0UlKB
Doors open for Colombian coal, copper mining
One door isn't closing as another opens for a Colombian mining sector navigating the energy transition; instead, the door is open for newcomer copper and remains open for long-term mainstay coal, even as companies in the sector eye GHG emissions reduction goals.
Despite many investors shying away from steam coal (see Net-Zero Business Daily coverage here and here), the resource is experiencing a resurgence on supply shortages and post-pandemic demand for coal, however short-lived that may be.
Among backers such as Glencore, a judicious doubling or tripling down on a coal mining investment isn't even seen as a hurdle to net-zero emissions ambitions.
The Swiss-based natural resources company on 28 June bought out BHP and Anglo American, its partners in Latin America's biggest open cast coal mine, the Cerrejón facility, for a combined $588 million. The company said it had reviewed the impact of owning 100% of Cerrejón and was confident its climate commitments would not be compromised by the buyout.
Glencore also said it is ramping up its GHG reduction goals. The company said it is raising its medium-term absolute total reduction target (across Scope 1, 2, and 3 emissions) to 50% by 2035 compared with 2019 levels from a prior 40% and has a new short-term reduction target of 15% by 2026 compared with 2019.
The company has pledged to achieve net-zero Scope 1, 2 and 3 emissions by 2050. In its preliminary 2020 earnings statement, Glencore said its Scope 3 CO2 emissions fell to 264,000 mt in 2020 from 347,000 mt in 2019, while its Scope 1 and 2 CO2 emissions fell to 24,300 mt in 2020 from 29,200 mt in 2019.
"Disposal of Glencore's current stake in the [Cerrejón] mine would not be consistent with our stated commitment to a responsible managed decline of our coal portfolio, nor would it result in a genuine reduction of absolute greenhouse gas emissions," the company said.
As "we are one of the world's largest producers and exporters of seaborne traded thermal and coking coal," Glencore today is benefitting from rising prices too.
Colombian FOB physical weekly thermal coal prices have increased nearly 61% since 8 January, to $98.00/mt on 25 June, according to IHS Markit's McCloskey Fax. (That is for basis 6,000 kilocalories NAR.) That quality coal marked at $76.00/mt just four weeks ago, $61.00/mt on 8 January and $42.00/mt 52 weeks ago.
Eyeing all the options
Columbia's government also has faith in mining.
Copper and coal are found in the same part of Colombia, Minister of Mines and Energy Diego Mesa said 23 June.
Colombia won't be abandoning coal, and the country will be expanding its mining matrix, Mesa told the Global Energy Transition 2021 conference hosted by Reuters.
The government must "adjust our coal industry, especially thermal coal, which is the one that we export the most, towards the new realities in the market, and obviously if we see that the demand is going to plateau and eventually decline—even though we see still very strong demand from China, India, and some other Asian countries—we need to make sure that we're competitive," he said.
Coal is Colombia's second biggest export behind oil. Colombian coal and coke shipments totaled 15.1 million mt in the first three months of 2021, according to IHS Markit data.
But at the same time, the government recognizes copper's importance to its future will grow. "We would like to diversify our mining matrix, we see significant opportunity, especially on metallic minerals. Those minerals are actually are going to be in demand for the energy transition, not only in Colombia, but worldwide," Mesa told attendees of the virtual conference.
There is "going to be a significant increase in [copper] demand in the short to medium term," Mesa said, citing a study by the World Bank that suggested demand in the next 25 years for copper would be equivalent to consumption over the past 100 years.
Location, location, location
"Colombia is in a very nice location because the copper belt starts in Chile, which is the main producer of copper in the world, and continues in Peru, which is the second [largest] producer, ends up in Panama and, obviously, it goes through the west part of the country," said Mesa.
Three copper projects are in the early exploration phase in Columbia—El Dovio, Mercedes, and San Matias, said John Mothersole, IHS Markit Director, Pricing and Purchasing Service.
Only Cordoba Minerals' San Matias project has proceeded far enough to have an estimate of potential capacity tag to it at 25,000 mt/year, he said.
To add to this, the government launched an auction for concession blocks for five areas covering 6,560 hectares with copper and polymetal prospects in the departments of La Guajira and Cesar in the first quarter of 2021. The awards will be made by the end of June.
Another 18 areas in Antioquia department and 12 in Tolima are due to be auctioned.
"Electrons are replacing oil, so you're going to need copper," said Mothersole.
Cerrejón is in La Guarjira. Three mines owned by Birmingham, Alabama-based Drummond—the Pribbenow, El Descanso, and El Corozo facilities--are in Cesar.
Also in Cesar are Glencore subsidiary Prodeco's La Jagua and Calenturitas mines, although the unit is trying to hand the concessions back to the government.
The mines have been on care and maintenance—whereby production is halted, but the site is kept in good enough condition to restart operations—due to the COVID-19 pandemic since March 2020, which is boosting local coal prices, compounding global supply weakness fired by a dispute between China and Australia—home to 16 Glencore mines, though not all are steam coal.
Glencore wants to hand back the mines because the government won't let the assets remain on care and maintenance while the company figures out whether they are profitable enough to retain.
So perhaps there's a little of "when one door is shut another is opened" when it comes to Glencore's coal assets in Colombia.
The earliest attribution of the phrase comes from Miguel de Cervantes in his novel, Don Quixote, in which the titular character tilted at the 17th century's wind turbines.
A couple of centuries later it was a phrase associated with Alexander Graham Bell, most famously a pioneer of electrification in the field of telecommunications, but also a patent holder and advocate for heating homes using selenium solar cells.
In the solar sector, copper is used in heat exchangers, wiring, and cabling.
Also, copper is used in the cabling, wiring, turbine, transformers, and turbine transformers of a wind farm, according to the Copper Development Association (CDA), and Cervantes' character Sancho Panza would surely have stuck to his advice if Don Quixote were thinking of charging a GE 6.0-164 Cypress turbine, whose tower alone stands 164 meters.
Offshore wind farms need even more copper than their onshore counterparts due to cabling requirements. Energy storage needs copper for cabling, wiring, and switches. Meantime, a battery electric vehicle requires nearly four times as much copper content as an internal combustion engine it might be replacing, the CDA said.
South American copper belt
Throughout Latin America, the growing demand for copper brings opportunities, as Colombia's neighbors Chile and Peru are two of the top copper producers globally.
Three of the world's top ten mines by production capacity are Peruvian, according to the International Copper Study Group's "The World Copper Factbook 2020."
Peru is a real success story as it expanded production to more than 2 million mt in 2020, with 2024 output projected to reach 2.8 million mt, having been stuck producing less than 500,000 mt/year before the turn of the century. Colombia is an excellent candidate to follow a similar path to its neighbor, said Mothersole.
To diversify Colombia's mining basket, the ANM, the industry regulator, said 23 June it plans to carry out a series of studies. "Colombia is practically unexplored; currently, mining activity is carried out across 2.9% of the country's territory," said the regulator.
"Mining has been an important engine of our economy and is projected as the axis of the post-pandemic productive reactivation; Colombia has great mineral resources and productive potential, that is why we are focused on diversifying our mineral matrix, thanks to the potential of the territory and the policies created to facilitate mining investment in our country," ANM President Juan Miguel Durán said in the statement.
To that end, on 28 May, the ANM said it was planned to cut the time taken for evaluating mining concession proposals to 90 days from 325 days previously.
The cash price of copper on the London Metal Exchange is up 16.5% since the first trading day of the year, finishing 29 June at $9,225.50/mt, according to the exchange's latest data. At one point in mid-May, the cash price was 35.4% higher than where it started the year, reaching $10,724.50/mt. Compared with the first trading day of 2020, the price was up 49.6% 29 June, the data show.
Even after the jump in value, there is still a good long-term pricing picture, said Mothersole, although a lot of optimism is already priced into the market.
In addition to the upcoming copper concession auctions, the government will host a renewable energy auction in the second half of 2021 as part of buying in to the energy transition.
When the Marquez administration came to power in 2018, "we had a clear vision to increase significantly the share of variable renewable energy in our power matrix," Mesa said 23 June.
"Columbia has significant potential in solar and wind up all across the country, but specifically the northern part, [especially] the province of La Guajira, which has significant potential both in solar and wind," he said.
Currently, Colombia has 1 GW of non-conventional renewables generation and expects to reach 2.5 GW by 2022, President Ivan Duque Márquez told IHS Markit Vice Chairman and Pulitzer Prize-winning author Daniel Yergin on the opening day of CERAWeek by IHS Markit in March.
Non-conventional renewables accounted for 0.2% of the Colombian electricity mix when Márquez took power in August 2018: a grand total of 35 MW.
The government has been pushing another export powerhouse, state-owned oil and natural gas company Ecopetrol, to help with this transition. The company's first solar facility came online in 2018. The company has an installed renewable generation target of 400 MW by 2023, CEO Felipe Bayón told the June Reuters conference.
- EU states turns to coal power amid worries over Russian gas supply cut
- Eyeing battery grade lithium in the Americas: Q&A with American Lithium Corp. CEO Simon Clarke
- Energy transition to drive doubling of copper demand by 2035: S&P Global
- Petro walks back rhetoric; eyes renewables, gas-based transition for Colombia
- IEA endorsement puts nuclear energy under scrutiny in low-carbon transition
- European green ammonia is profitable now and will be again
- Cement industry seeks more CCUS help to decarbonize
- EU Parliament members cite Russian conflict in vote to oust gas from green taxonomy