Does Anglo American's Coal Output drop in 2019 hints at its exit?

South Africa based diversified miner, Anglo American Plc has recently released its unaudited production results for the year ending 31 December 2019. While the company is engaged in the mining of multiple metals, in this article we have focused only upon its coal operations.

Anglo American mines both thermal and coking coal and has its mining operations in South Africa, Australia, and Colombia. The company's total coal production has registered a decline of 7% y-o-y basis in 2019 as the same stood at 60.1 MnT against 65.5 MnT in previous year 2018.

In terms of metallurgical coal, the company's output has registered an increase of 5% y-o-y as the same stood at 22.8 MnT in 2019 against 21.8 MnT in 2018. This rise in company's metallurgical coal output is primarily due to the timing of longwall moves at Grosvenor and Grasstree, as well as improvements in wash plant throughput at Moranbah-Grosvenor and equipment productivity at Dawson

Hard coking coal output surged by 1% y-o-y and stood at 18.9 MnT whereas PCI/SSCC production increased by 28% y-o-y and stood at 3.9 MnT in CY19. In the fourth quarter (Sep-Dec'19), the ratio of hard coking coal production to PCI/semi-soft coking coal was 81:19 (full year 2019: 83:17).

The company's total thermal coal output in 2019 has recorded a plunge of 13% y-o-y basis and stood at 37.8 MnT against 43.6 MnT in 2018. In case if we analyse the bi-furcation further, Anglo American's export thermal coal production from Australia increased by 2% to 1.41 MnT in 2019. However, export thermal coal production from South Africa, decreased by 3% y-o-y to 17.8 MnT, while domestic thermal coal production from South Africa fell by 27% to 10.1 MnT. Export thermal coal production from Colombia also decreased by 16% year-on-year to 8.59 MnT.

The bigger picture behind

Towards the end of 2019, Anglo American Plc dropped hints that its days of mining the world's most polluting fuel, thermal coal are limited given the rising carbon emissions from the fossil fuel's usage. According to the company sources, the company is on a trajectory away from thermal coal, and will do so responsibly.

Anglo American which has spent decades in positioning itself as environmental and social champion, has been cutting its coal production in recent years, with the thermal coal output falling from as much as 80 MnT to less than 30 MnT. In fact, in its production guidance for 2020, the company has lowered its thermal coal target to 26 MnT from a previous goal of as much as 30 MnT while metallurgical coal production is expected to be between 21 MnT to 23 MnT. The company has sold its coal mines in South Africa to Seriti Resources Holdings Ltd., which is planning to build a massive black-owned mining company.

Anglo's rival Rio Tinto Group has already sold its last coal mines in 2018, making it the first major mining company to go coal-free. BHP Group is looking at options to exit its remaining coal mines in Colombia and Australia which has left Anglo with Glencore Plc as the only two Western majors with thermal coal assets.