As Glencore Walks, Colombia Envisages Decades of Coal Mining
(Bloomberg) -- Glencore Plc may be walking away from its Colombian coal mines, but Colombia isn’t.
The South American nation better known for its coffee and crude is also a major supplier to European coal-fired power plants. While that market may be shrinking as Europe leads a clean-energy shift, there’s still plenty of demand elsewhere for the most polluting fossil fuel, according to Mines and Energy Minister Diego Mesa.
His government is betting coal will continue to play a major role in Asia’s energy mix for the foreseeable future. After Colombian output plunged last year amid a strike and a decision by Glencore to halt operations in a depressed market, Mesa expects production to bounce back. While Glencore plans to start handing back contracts for its Prodeco mines, Colombia hopes to find a new operator.
“These assets continue to be of interest to many investors, specially Asian ones,” Mesa said in an interview from Bogota Thursday.
Two of Prodeco’s six license areas have enough coal to continue operations for another decade, Mesa said. The ministry and Glencore, the world’s biggest shipper of coal, have been in contact with some companies interested in taking them on, he said.
China, which burns half the world’s coal supply, has succeeded in reducing the fuel’s share of its energy mix in recent years, but that’s happened as total energy consumption has risen, meaning the amount of coal being burnt hasn’t changed much since the early 2010s. In fact, after a sharp drop in recent years, global coal demand is forecast to rise slightly this year before flattening out to 2025, according to the International Energy Agency.
Glencore declined to comment beyond a February announcement that it planned to start handing back contracts after the government refused to let it prolong a shutdown of the operation. While a company review concluded that resuming the operations was uneconomic, Mesa said they would be profitable for another owner.
Still, a sale isn’t the only option. The mines may be closed down or Colombia could auction the licenses. But Glencore transferring them to another investor is certainly on the table even as some mining heavyweights exit coal in a bid to reassure investors they can curb their environmental impact.
“We’ve received interest from companies located in Asia, and companies that already have operation in Colombia,” the minister said, adding that the country can increase competitiveness via royalty payments.
Closely held Drummond Co. is expected to increase Colombia output by about 5% or 6%, and the Cerrejon mine, in which Glencore owns a stake, has resumed operations after a 91-day strike last year.
While Colombian production may not get back to previous levels of more than 80 million tons a year, it could return to 65 million to 70 million, Mesa said. The country’s current high-quality mines can keep operating for “a couple more decades,” he said.
“Coal demand from China and India is going to continue. It’s impossible for them to switch their power matrix overnight and stop depending on thermal coal,” the minister said. “We are going to continue to give support to the operations we currently have.”
The Cerrejon mine, whose shareholders also include BHP Group and Anglo American Plc, is striving to adapt to a softening of demand in Europe by increasing its competitiveness in Asia. The mine has streamlined its operations, including reducing staff, in a bid to stem losses and is calling for greater institutional and legal stability.
“The coal market has changed and we have to change with it,” Cerrejon said in an emailed response to questions.
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