Stanmore Coal: Failing to plan or planning to fail?

Stanmore Coal's Isaac Plains mine - Credit Dean Draper, Lock the Gate Alliance

Stanmore Coal’s Isaac Plains mine – Credit Dean Draper, Lock the Gate Alliance

Stanmore Coal owns and operates nine coal mining projects in Queensland, including open cut and underground mines, as well as a number of projects in development.

Like most pure play fossil fuel companies, Stanmore is in denial about the future of coal in the wake of the Paris Agreement. If the world is to fulfill its commitment to keep global warming well below two degrees, research suggests 95% of Australia’s thermal coal reserves must stay in the ground.

Global action to meet the Paris Agreement therefore threatens to leave much of Stanmore’s coal stranded, as demand for the most emissions-intensive fuel source dries up.

Failing to plan or planning to fail?
Given the dire predictions for the future of the thermal coal industry, a shareholder attending Stanmore’s annual general meeting today asked the board how the company planned to avoid massive losses in the face of a global transition away from coal-fired power generation.

[Shareholder]: ‘Does the board have a view on when the value correction to fossil fuel companies with stranded assets will occur as a result of regulation, and do you have a strategy to avoid that risk in projects such as the Range project?’

[Board]: ‘I think the company leaves regulation to the government and it leaves the assessment of the response to the issues you are raising to the community and to the share holding public. I don’t think it is something the board is interested in taking part of a topical debate about it.’

[Shareholder]: ‘In terms of how it would affect the Range Project, do you think it is going to affect you at all?’

[Board]: ‘I think you need to make your own judgement about that.’

[Shareholder]: ‘But on your website you say that thermal coal is going to keep going up in terms of exports. Do you base that on the International Energy Agency?’

[Board]: ‘We base that on our own market perceptions. You are entitled as a shareholder to make your own judgements in respect to that, and to deal with that in a way that other shareholders do.’

This ‘topical debate’ is something that could mean bankruptcy for the company, or a greater than two degree warming for the world. The fact that the board doesn’t want to engage in it and bases predictions on its ‘own market perceptions’ is worrying for both shareholders and the public.

Bills are stacking up
As part of Stanmore’s mine lease agreements, the company must set aside a financial assurance to rehabilitate former mining sites, which is paid as a bond by bank guarantee to the state government.

If a miner fails to progressively rehabilitate a site during its operating life, the financial assurance will rise as the rehabilitation deficit grows. It’s therefore in both shareholders’ and taxpayers’ interests to rehabilitate a mine site while it’s still producing, as the process can be funded by the mine’s cashflow. For Stanmore’s largest mine, Isaac Plains, the financial assurance is currently $32 million.

Queensland Environment Minister Steven Miles has recognised that, in many instances, prescribed financial assurances do not reflect the true cost of rehabilitation, and his State Government is currently conducting a review of the assurance system.

If Stanmore was to go bankrupt, any deficit between the financial assurance and the full rehabilitation costs would likely end up being covered by taxpayers. It’s not surprising then that shareholders (and taxpayers) would be keen to know about Stanmore’s Isaac Plains rehabilitation plans.

A shareholder asked Stanmore’s board if the company was planning to reduce the level of financial assurance required for Isaac Plains by increasing the rate of progressive rehabilitation.

The board acknowledged that ‘responsible response to the asset includes environmental performance which includes rehabilitation’, however they did not explain how they would reduce the level of financial assurance.

Worryingly unprepared
Stanmore Coal’s apparent failure to properly consider the implications of the Paris Agreement indicates not only a disregard for safe climate future, but also a potentially outdated business model.

On top of this, the company’s approach to its mine rehabilitation responsibilities raises the possibility of massive cleanup bills in the future.

It is little wonder that concerned shareholders felt it necessary to raise these issues at Stanmore’s AGM. Sadly the responses offered by the board would have done little to allay concerns.

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