The battle for Teck Resources’ coal and metals assets highlights the challenges the mining industry faces as it looks to a future where its resources are necessary for the clean energy transition, and grapples with its history as a major polluter, experts told BNNBloomberg.ca.

“To borrow from a Charles Dickens book, the mining industry finds itself in the best of times and the worst of times,” John Steen, EY distinguished scholar in global mining futures at the University of British Columbia, said in a telephone interview.

“Mining finds itself front and centre of the energy transition both as an enabler but also a subject of intense criticism. It's really quite extraordinary.”

TECK’S SEPARATION, ACQUISITION BIDS 

Vancouver-based Teck has proposed separating its coal and metals operations into two separate companies, and Teck’s CEO said the change intends to give shareholders a choice over what kind of assets they want to hold.

The move reflects the increasing prevalence of environmental, social and governance (ESG) investing, and investors’ wariness of coal, which is one of the world’s biggest sources of greenhouse gas emissions, according to the International Energy Agency.

Minerals like copper and nickel, meanwhile, are in high demand in the rush for batteries used in renewable technology like electric vehicles. 

Steen said Teck is trying to present itself to investors as a transition metals company with a “clean energy story” and “command a price premium for those positive ESG characteristics.” But he noted that their metals business was made possible by their success as a coal producer, and profits from the coal company will go support Teck’s metals business for several years to come.

“It’s like having it a bit each way,” he said.

The separation plan has been accelerated by a takeover offer from Glencore Plc, which wants to buy Teck in one piece. Both companies are courting shareholders ahead of an April 26 vote on Teck’s plan.

COAL'S USES AND EMISSIONS

In fighting off Glencore’s bid, Teck has highlighted that its coal is used to make steel, which is necessary to produce goods for the energy transition.  Glencore, meanwhile, produces thermal coal, which is used for energy and contributes massively to the planet’s emissions. 

According to Chris Bataille, an adjunct research fellow at Columbia University Center for Global Energy Policy, there’s no difference between the two types of coal from the climate’s perspective.

“Coal is coal,” Bataille said by phone. “When you use it to make electricity or use it to make steel, the net result is the same: carbon dioxide up in the atmosphere.”

Abating emissions from coal is much more challenging than from other fossil fuels, Bataille explained, with no equivalent to the carbon capture and storage technology being explored as a method to reduce emissions from oil production.

Teck’s plans appear more focused on company value than reducing emissions, Bataille said. He pointed to other steelmaking techniques such as using hydrogen, and argued those should be the world’s focus as it winds down coal production to fight climate change.

Teck did not respond to a request for comment.

Steen said he sees the world’s transition away from steelmaking coal as a “multi-decade story” while alternative forms of steelmaking are developed, and he predicted investors will understand Teck’s approach.

ESG CONSIDERATIONS AND COMPLEXITIES

University of Toronto economic analysis and policy professor Walid Hejazi, who teaches in the Rotman School of Management’s ESG Designation program, said he expects coal production will become even harder to finance over the next decade.

For that reason, he said Teck’s plan to separate its assets is a smart one, but in order for it to succeed, the proposed coal company, Elk Valley Resources, needs a “credible and verifiable strategy to decarbonize” to keep investors happy.

“If it just stays as two companies that are married to each other through the ownership linkages and are doing exactly what they did before, that is greenwashing,” he said.

“(Teck is) reading the tea leaves that stakeholders are getting increasingly frustrated with the impact companies are having on the environment.”

Dustyn Lanz, a senior adviser with ESG Global Advisors, said he sees Teck’s proposal as a “meaningful transition strategy” that bets on coal production coming to an eventual end, and uses steelmaking coal profits in the meantime to build up the metals business.

Mining has become crucial as the world transitions from fossil fuels to a “mineral-powered economy,” he said, and that shift has presented new opportunities for miners when it comes to appealing ESG investors.

“Some mining companies probably see that as an opportunity to set a new narrative around mining because historically, the narrative around mining has been kind of negative in environmental circles,” he said.

But alignment with the clean economy isn’t the only thing that goes into an ESG rating, Lanz cautioned, and he said Teck’s possible sale to Glencore raises separate concerns on the governance side.

Teck has higher ESG ratings than Glencore, and Lanz said that raises questions for investors about how the Canadian company would be governed if it’s swallowed by its Swiss rival. There is also the possibility that Teck’s ESG and sustainability teams could have less influence or leave the company after the sale, he added.

Steen noted that Teck has a better reputation for the type of innovation needed to meet stringent regulations for coal mining in British Columbia’s Elk Valley, and a sale to Glencore could be risky on that side.

A spokesperson for Glencore said in an email that the company is dedicated to safety and maintaining Teck’s Canadian footprint, as well as its social, labour and environmental programs in Canada.

SHAREHOLDER VOTE AND WHAT’S NEXT

Shareholders will weigh in on Teck’s plan for the future of its assets this week.

Hejazi said if the split goes through, it will probably be easier for Teck to deploy effective decarbonization strategies that are specific to each business.

Bataille said he sees a potential good outcome from placing a high value on the metals needed for the energy transition – but things could go badly, for example, if Teck later decides to sell the coal component to another operator who ultimately decides not to shut it down.

“It could go either way,” he said.