Coal expansion helps insurers return to Australia producer Whitehaven

Whitehaven Coal Ltd., one of Australia’s largest coal producers, has scrapped a specially planned vehicle originally intended to provide in-house insurance after finding outside insurers willing to take on the risk.

The development follows Whitehaven’s $3.2 billion purchase from BHP Group Ltd., which added production of steelmaking raw materials to its portfolio of mines that mostly supply fuel for power plants.

The acquisitions created the necessary level of diversification to improve Whitehaven’s access to insurers, according to a company spokesman. That means the SPV project, first announced two years ago, has effectively been put on hold.

Access to insurance is becoming a key indicator for assessing the level of corporate anxiety related to climate change. Zurich Insurance Group AG shed a number of commodity exposures earlier this year, including new metallurgical coal mines, after deeming them too risky.

As some insurers pull out, the fossil fuel industry has turned to so-called domestic captive insurance SPVs, with BHP, the world’s biggest miner by market value, as well as Glencore Plc and Shell Plc among those who created such vehicles. . The global captive insurance market grew 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 excess cash. If a need for coverage arises, then they reach out to the SPV.

Whitehaven, which declined to identify the third-party insurance firms it uses, says the original need for an SPV is no longer as urgent because metallurgical coal now represents a much larger part of its total business. Most banks and asset managers treat this commodity as a more acceptable risk than thermal coal, which is used to generate heat and electricity.

This is largely due to the role that metallurgical coal plays in steel production, which is a critical component in the clean energy transition. Of the 60 global banks analyzed by French nonprofit Reclaim Finance, only nine have adopted metallurgical policies for coal, compared to 47 for thermal coal. Some of the banks have even started backing off on their coal metallurgical commitments, according to Reclaim Finance.

Whitehaven previously generated almost all of its revenue from thermal coal, although the share fell to 41% in the second quarter after the addition of BHP’s Blackwater and Daunia mines in Australia. Metals sales will likely continue to represent a growing share of the total, Whitehaven said in a July filing.

Climate action advocates insist it’s wrong to treat metallurgical coal as a less environmentally damaging 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 thermal coal exports are much higher, at about 1.1 billion tonnes in 2023, compared with 348 million tonnes for metallurgical coal, according to data compiled by the Australian government.

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

In the insurance sector, 46 firms have pledged to end or limit coal services, according to Insure our Future, a nonprofit coalition. Zurich is the first to add restrictions on metallurgical coal mining.

But even Zurich qualifies its restrictions. The company said in an email that steel remains critical to the net zero transition. An immediate phase-out of metallurgical coal is not feasible due to technological and economic constraints.

Zurich’s current position restricts underwriting for new coal metallurgical projects as 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 ensure it does not pay more than it has to, the company spokesman said. He did not rule out the creation of an internal SPV at a future date, the person said.

Photo: A reclaimer stacker works near coal storage at the Newcastle Coal Terminal in Newcastle, New South Wales, Australia, Friday, March 26, 2021. Photo credit: Brendon Thorne/Bloomberg

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