9 December 2020
The largest shareholder of Australian thermal coal mining company New Hope, Washington H Soul Pattinson, fielded a number of shareholder questions on the shift away from coal-fired power generation required to avoid the worst impacts of climate change. The company’s responses will do little to reassure investors that WHSP is appropriately managing the low carbon transition.
In response to multiple questions on this topic, Managing Director Todd Barlow stated WHSP assumes New Hope will generate no cashflow beyond 2036, the end of the currently-approved lifetime of its largest asset, the Bengalla coal mine in NSW.
When asked specifically about climate change transition risks facing New Hope’s proposed ‘Stage 3’ extension to its New Acland coal mine, Mr Barlow again said the company does not need to consider the implications of policy shifts to achieve net-zero carbon emissions by 2050 as the extension would only see production into “the late 2030s”.
This approach ignores the fact that achieving net-zero by 2050 requires massive reductions in coal demand over the next decade. The International Energy Agency’s Net Zero 2050 scenario projects coal-fired power generation dropping by 75% by 2030, noting “Most of this reduction comes from a limited number of countries – including China, India and Southeast Asia.” These countries typically make up well over 80% of New Hope’s customer base.
With New Hope planning to produce coal for power generation into the late 2030’s, WHSP’s failure to consider the short- and medium-term impacts of a net-zero transition suggest a failure of adequate climate risk management.
$70m divestment, but still New Hope’s largest shareholder
Providing interesting context to today’s meeting, WHSP yesterday sold off around $70 million worth of its New Hope shares, bringing WHSP’s holding down to 45%. New Hope’s share price fell by around 75% from a seven year peak in March 2019 to an all time low in March 2020, and has since recovered slightly to around a third of the March 2019 price.
Shareholders at WHSP’s annual general meeting today wanted to know more about the company’s significant divestment decision. WHSP didn’t provide great detail about the rationale or analysis underpinning the decision, stating only that it helped to introduce new institutions to New Hope’s shareholding list.
WHSP and New Hope share three directors, including Rob Millner, who chairs both boards, his son Tom Millner, and WHSP Managing Director Todd Barlow. Given the obvious conflict of interest risks in the divestment decision, the board was asked if those three were directors involved in the divestment decision, or if they abstained or excluded themselves. Mr Barlow responded that the decision was based on information available to the market, and that the directors were not aware of any information that New Hope has that impacted the decision, but was not in the public domain.
Following the trend?
Eight of Australia’s 40 largest superannuation funds now exclude investments in companies deriving material revenue from thermal coal mining, and the world’s largest investor Blackrock has joined the growing list of major institutional investors excluding or restricting coal investments. Due to its New Hope investment, WHSP is likely to be included on many of these growing investment exclusion lists.
The board was asked about this global investment shift away from coal and its impacts on WHSP by multiple shareholders at today’s AGM. Mr Barlow repeatedly claimed this had not had a material impact on WHSP’s share price or number of investors. However, with the list asset managers are leaving coal growing faster that ever, and fossil fuel producers underperforming the Australian share market for the last ten years, it’s hard to see how WHSP could not be impacted by the rapid transition away from coal.