Turning Exxaro green

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Mxolisi Mgojo, CEO of Exxaro.
Mxolisi Mgojo, CEO of Exxaro.

The company intends to make the most of its coal but is aiming for carbon neutrality by 2050, says CEO Mxolisi Mgojo.

After a decade of rapid technological and policy shifts in energy sectors, 2020 has brought disruption across the energy landscape. The consultancy McKinsey’s forecasts from their global energy insights show that a rebound to demand levels before Covid-19 takes one to four years for power, oil and gas, whereas coal demand does not return to 2019 levels.

The decline in coal is forecast to continue, as gas and, increasingly, renewables are more economical alternatives in the power sector. This does not come as alarming news to coal miner Exxaro.

The mining sector has been facing pressure from governments, investors, and society to reduce carbon emissions. Mining is cited as being responsible for 4% to 7% of greenhouse gas (GHG) emissions globally.

“One of the things that you do as a coal miner is to sell your coal to power stations and we saw that within our markets (predominantly Europe), which we’re selling coal to, with Germany among the biggest, there were already talks of renewables.”
Mxolisi Mgojo, CEO of Exxaro, reflecting back to almost two decades ago when some European governments kickstarted their long-term plans to phase out coal.

By 2008, as the then head of the coal business at Exxaro, Mgojo witnessed that the shift from coal had started coming on very strong and it was already happening in Europe. It was at this point in time that the miner said, “South Africa tends to be very fast followers if not leaders.” Therefore, if this shift is happening in Europe, it will eventually trickle down to SA. “It was a case of when.”

Coal would be the most obvious victim of such shifts. Decarbonisation of the power sector would mean taking net GHG emissions to zero, implyingan almost complete reduction in the combustion of coal. And if metal companies switch to hydrogen and biofuels as energy sources, demand for metallurgical coal will weaken, according to McKinsey.

Mgojo’s tenure as chief executive of the coal miner has thus been one of making the most out of a resource with a looming expiration date, while carving out a place and market for the miner in an inescapable green future. Fully replacing revenues from coal will be difficult. Yet many of the world’s biggest mining companies will need to rebalance non-diverse mineral portfolios. To respond to the impact of climate change, performing end-to-end diagnostics of climate change’s effects on the Exxaro business, which Mgojo and his predecessors had done as early as 2009, helped indicate which assets to protect from physical climate change and which stand to gain or lose from decarbonisation.

In his first year as chief executive in 2016, the miner’s maiden renewable energy investment,a 50/50 joint venture with Tata Power called Cennergi, made its first profit. Today, Cennergi is wholly-owned by Exxaro and operates two windfarms in the Eastern Cape (Amakhala and Tsitsikamma windfarms) that feed 239MW of renewable energy into the national grid.

“With the issues of climate change, we made a commitment around carbon neutrality. We are not denialists, in fact, we are very proactive in terms of how we are now relooking and reshaping our strategy,” says Mgojo.

What the rest of the strategy entails?

“We are not sure when coal is going to fall off the cliff. So, we are not going to argue over whether it is going to fall off or not, but how we are going to exploit the resource that we have in the most responsible way during this period of our transition into more renewables.”

Going forward, Exxaro intends to make the most of its most high-valued coal, which has got the lowest carbon content. While fast-tracking that part of its coal exploitation, the company will not be investing any new capital. Besides, while coal demand is still rising, capital investments in coal mines have become more difficult, with public opinion hardening and some banks pulling away from the industry in certain regions.

US and European banks have, for instance, been cutting off funding for new coal-fuelled power plants in poorer Asian countries, a move that could hasten the shift toward cleaner energy sources. The Wall Street Journal reported that lenders largely stopped greenlighting coal deals over carbon emissions concerns.

Most key financiers in Japan and South Korea as well as some in China are cited to have signalled in recent months that they are planning to stop or slow the flow of money for projects outside their borders as their governments increasingly view overseas coal projects as risky investments.

Part of Exxaro’s decarbonisation strategy is subscribing to the Task Force on Climate-related Financial Disclosures (TCFD) guidelines in terms of how the miner is going to get to carbon neutrality by 2050. Part of that is coming up with a decarbonisation strategy for its existing assets. “We are good in open mining; part of our strategy is how do we leverage our capabilities,” says Mgojo.

The TCFD develops recommendations for more effective climate-related disclosures that could improve investment, credit and insurance underwriting decisions.

Over the past five years, Exxaro’s FTSE Russell ESG index score for JSE-listed entities has also steadily improved and moved into the top quartile of global performers within the basic resources sector. The ESG momentum is currently in the top 22% of performers. Relative to its peers, the score is that of a “best-in-class” coal mining company.As a result of Covid-19, government policies are more important in the energy transition.

In the longer term, fundamental shifts in the energy system will continue, and the coming decades could see a rapidly changing landscape.

With less than two years left at the helm of Exxaro – as Mgojo makes way for the incoming chief executive Nombasa Tsengwa, currently the managing director of minerals – among the pertinent questions is, now that the miner has a renewable energy business, how does it take it global?

There is currently about 2.5GW of renewable energy requirement from the mining industry which Exxaro sees as an opportunity to grow its renewable energy business by playing into that space.

Following the recent liberalisation of the energy sector in South Africa where Eskom will no longer be the only buyer of renewable energy, there are some grounds for optimism. An added benefit is also that of supporting Eskom for them to not generate more electricity with their limited capacity. It frees up capacity that becomes available for other areas, relieving Eskom of a lot of pressure.

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This article originally appeared in the 20 August edition of finweek. You can buy and download the magazine here.

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