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08-Jun-2020:  I'll start with an article published on Friday by Mining Monthly, and lower down I'll include a very interesting article on BlackRock that was published in the Sydney Morning Herald (SMH) this morning.

05-June-2020: High Court set-back for New Acland stage 3 expansion

This story highlights the growing headwinds that thermal coal companies are facing with pressure from all sides, particularly in relation to developing NEW mines.  New Acland is the big new mine proposed by New Hope Coal (NHC) which is 51% owned by SOL (Washington H Soul Pattinson). 

I consider their controlling interest in NHC to be SOL's main downside.  I exited SOL (from my SMSF) earlier this year, replacing them with Saracen (SAR), a gold miner.  I don't mind some metallurgical coal (or met coal) exposure, such as I have through S32 (they also own thermal coal mines in South Africa but they are in the process of selling all of them to a South African majority-black-person-owned-enterprise - which will leave S32 with no thermal coal assets, BHP have been much slower to signal their intent to move away from thermal coal). 

Late last year, BlackRock, the world's largest investment firm, made headlines announcing that it would put climate change at the centre of its investment strategy.

In a letter to investors the firm’s founder and chief executive Larry Fink said financial and climate risk had converged and that capital would soon start flowing away from fossil fuel industries.

See here:  June 8th (today): SMH: 'Everyone was watching': BlackRock is showing its hand on coal

As a result BlackRock – which has an eye watering $10 trillion in assets under management – would begin abandoning companies heavily invested in thermal coal and demanding that companies report their exposure to climate change risks, their contribution to emissions and their plans to reduce them.

Fink warned the world’s boardrooms that BlackRock would be willing to "vote against management and board members when companies are not making sufficient progress".

The announcement was greeted in climate change advocacy circles with a mixture of celebration and scepticism.

Due to its sheer size BlackRock is one of the world’s largest investors in fossil fuels and it has a history of opposing shareholder resolutions demanding climate change action. Was this corporate greenwashing, or would BlackRock really act?

“This is the letter, and stance, that’s put us on pins and needles – everyone is watching to see if BlackRock follows through on these commitments,” wrote the Union of Concerned Scientists, one of the leading climate advocacy groups in the United States on its blog.

BlackRock’s move could signal the beginning of the end of the corporate dominance of fossil energy companies, or not much at all.

BlackRock’s recent actions suggest the giant has begun putting its money where its mouth is.

In May BlackRock published an update to the January missive, revealing it had divested from companies that derived a quarter of their revenue from thermal coal and warned again it would vote on the issue at annual general meetings.

Later that month it acted. It voted against the re-election of two ExxonMobil directors, saying it believed they had failed to make progress on climate change action or reporting; and in favour of a shareholder resolution to split the role of chief executive and chairman. It also supported a resolution demanding that the US oil giant Chevron report on how its direct and indirect lobbying aligns with the Paris climate agreement goals.

The votes were praised by climate advocates, though there was disappointment that BlackRock did not make public how it voted on climate-related proposals at other major firms, in particular at the bank JP Morgan Chase.

But it was a warning shot fired off by BlackRock to the South Korean utility Kepco that attracted the attention of Tim Buckley, an energy analyst with the pro-renewables Institute of Energy Economics and Financial Analysis.

At the end of May it was revealed that BlackRock had demanded that Kepco explain its strategy in investing in coal-fired power plants in Indonesia and Vietnam. According to a statement its investment stewardship team “escalated our concern to the company’s CEO via a formal letter ... It requests enhanced disclosure, including a clear strategic rationale justifying the company’s involvement”.

This is significant to Australia not just because Kepco is one of the largest financiers of coal-fired power plants in the region, says Buckley, but because the plants it has been channeling funds to are in the countries that coal industry advocates say are the future for Australian coal exports.

“Kepco is at the mercy of BlackRock, and the growth of the Australian coal industry is at the mercy of players like Kepco,” says Buckley.

But there is more to it. In January BlackRock said it would abandon thermal coal miners – which it did by May – but it did not mention coal-powered generation companies. The Kepco warning suggests that BlackRock is moving on both.

It is not alone. In April, the Japan Bank for International Cooperation, a company known by critics as “the coal store” announced it would no longer finance off-shore coal projects, bringing the bank into line with other major Japanese lenders.

“Financiers, investors, insurers, all the corporate money is headed for the door,” says Buckley.

This year the world’s financial markets and fossil fuel companies have been brutalised by COVID-19 turmoil. The world’s largest coalminer, Peabody, has lost more than 50 per cent of its value while America’s major banks have lost an average of around 30 per cent.

Over the same period BlackRock is up by 1 per cent and was last month referred to by CNN as “the new king of Wall Street”.

--- ends ---

That SMH (Sydney Morning Herald) article was published this morning, and was written by Nick O'Malley.

Nick O'Malley is National Environment and Climate Editor for The Sydney Morning Herald and The Age.  He is also a senior writer and a former US correspondent.

I personally accept the overwhelming science that climate change is real and is heavily influenced by what humans have done and continue to do all over the planet.  However, regardless of whether you are a climate change believer or a skeptic, or your view on why climate change occurs, the absolutely undeniable fact is that there is a severe backlash building against companies that derive 25% or more of their revenue from fossil fuel related activity such as thermal coal mining and oil production.  Therefore, regardless of each of our personal beliefs, there are serious risks attached to continuing to invest in those companies.

NHC is directly in the firing line.  SOL perhaps not so much because while they have a controlling interest in NHC, they also own large chunks of other succesful companies in totally different sectors, such as 25.3% of TPG (TPM), 19.3% of API, and 44.1% of Brickworks (BKW).  SOL also own positions in dozens of smaller companies, both listed and unlisted.  Some of the listed ones include Clover Corporation (CLV, 22.9%) and Palla Pharma (PAL, formerly TPI Enterprises, 23.2%).  Some of SOL's investments (such as CLV & PAL) are done either entirely or substantially via BKW because Brickworks also has a large investment division.  Brickworks are regarded as a subsidiary of SOL under the cross-shareholding arrangements between the two companies, so any substantial shareholding that BKW have is also regarded as being an identical substantial shareholding by SOL, so you'll often see matching notices by the two companies when the position is held by BKW investments.  If the SOL percentage is higher, it just means that there are additional shares held by Soul Patts (SOL) that are independent of the Brickworks (BKW) position.  That is all to say that while both SOL (and BKW to a lesser extent) have exposure to thermal coal production (via NHC), the percentage of their overall revenue and earnings respectively that are derived from fossil fuels such as coal and oil production is less than 25%, so a fund manager such as BlackRock aren't worried about them like they are with NHC.  However, while BlackRock might not dump SOL or BKW shares, or try to influence the voting at their AGMs, SOL would still be impacted by NHC's value continuing to deteriorate, and NHC are directly in the firing line of fund managers like BlackRock, as I have already said. 

So the risks are real, both to our climate, our future generations, and to our investments.

Disclosure:  I currently have no direct exposure to NHC, SOL, BKW, API or CLV.  I have held all of them - except NHC - in the past.  I currently hold PAL and TPM shares.

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Last edited 5 months ago

Looks like it is good value currently. Give a net earnings estimate of $200 mill again, a sector average 11x PE ratio, discount 10% makes this have a market cap of 2B. Rough estimate share price $2.40

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