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10th October 2024

By: Bloomberg

  

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Whitehaven Coal, one of Australia’s largest coal producers, shelved a planned
special purpose vehicle originally intended to provide in-house insurance after
finding external insurers willing to take on the risk.

The development follows Sydney-based Whitehaven’s $3.2-billion purchase of
coking-coal operations from BHP Group, which has added production of raw
materials needed for steelmaking to its portfolio of mines largely supplying
fuel for power stations.



Acquisitions have created the necessary level of diversification to improve
Whitehaven’s access to insurers, according to a spokesperson for the company.
That means the SPV project, first announced two years ago, has effectively been
put on ice.

Access to insurance is emerging as a key indicator for judging the level of
corporate anxiety tied to climate change. Zurich Insurance Group AG walked away
from a number of commodities exposures earlier this year, including new
metallurgical coal mines after deeming them to be too risky.



As some insurers retreat, the fossil-fuel industry has turned to in-house
so-called captive insurance SPVs, with BHP, the world’s biggest mining company
by market value, as well as Glencore and Shell, among those to create such
vehicles. The global market for captive insurance rose to a record last year,
surpassing $200 billion in premiums, according to broker WTW. Companies using
captive insurance transfer premiums to an SPV and reinvest any surplus cash. If
a coverage need arises, they then tap the SPV.

Whitehaven, which declined to identify the external insurance firms it’s using,
says the original need for an SPV is no longer as urgent because metallurgical
coal now accounts for a far larger chunk of its total business. Most banks and
asset managers treat that commodity as a more acceptable risk than thermal coal,
which is used to generate heat and electricity.

That’s largely because of the role that metallurgical coal plays in the
production of steel, which is an essential component in the clean-energy
transition. Of 60 global banks analyzed by French nonprofit Reclaim Finance,
just nine have adopted metallurgical coal policies, compared with 47 for thermal
coal.

Whitehaven previously generated almost all of its revenue from thermal coal,
though the share fell to 41% in the second quarter, following the addition of
BHP’s Blackwater and Daunia mines in Australia. Metallurgical sales are likely
to continue to account for a rising share of the total, Whitehaven said in a
July filing.

Advocates for climate action insist it’s wrong to treat metallurgical coal as a
less environmentally harmful material. Met coal — also called coking coal — can
be up to three times more polluting than thermal coal, according to Wood
Mackenzie, an energy consultancy. However, global exports of thermal coal are
far higher, at about 1.1-billion tons in 2023, compared with 348 million tons
for metallurgical coal, according to data compiled by Australia’s government.

“Coal is coal, and it is a major source of carbon emissions, whatever the end
use,” said Cynthia Rocamora, an industry campaigner at French climate nonprofit
Reclaim Finance.

Subscribe to the Bloomberg Australia Podcast on Apple, Spotify or wherever you
listen.

In the insurance sector, 46 firms have committed to end or restrict services for
coal, according to Insure our Future, a coalition of nonprofits. Zurich is the
first to have added restrictions on metallurgical coal mining.

But even Zurich qualifies its restrictions. The company said in an email that
steel remains essential for the net zero transition. An immediate phaseout of
metallurgical coal isn’t feasible due to technological and economic constraints.

Zurich’s current position restricts underwriting for new metallurgical coal
projects because existing mines are expected to meet demand until scalable
alternatives are available, the company said.

Whitehaven will continue to explore alternative sources of insurance to make
sure it isn’t paying more than it needs to, the company’s spokesperson said. It
hasn’t ruled out creating an in-house SPV at a future date, the person said.

More stories like this are available on
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