Will methane breakthrough lift Anglo American’s share price?

In what many see as a breakthrough for the viability of corporate and national emissions reduction targets, Anglo American has successfully deployed methane capture technology at a major Australian coal mine. The news comes as both Anglo American and Australia seek to diversify their revenues away from fossil fuels and into the energy transition.

- Anglo American successfully deploys methane capture technology in Australian coal mine.

- The technology forms part of greening initiatives both at Anglo American and in the Australian economy.

- iShares MSCI Global Metals & Mining Producers ETF offers exposure to Anglo American.

The share price of Anglo American [AAL.L] has been bolstered by news that the company has successfully deployed technology to capture methane emissions from its Moranbah North coal mine in Australia.

The mine is one of Australia’s largest polluters, but its methane, which is a far more potent greenhouse gas that CO2, will henceforth be captured using shafts and pipes from the mine’s coal seams, and then used to heat local homes and businesses, as well as providing power to the grid.

Anglo American’s share price has gained 2.4% since the news on 27 March. In the last month, however, its shares have dropped by the same amount, and are down 17.7% year-to-date.

Australia is among 100 nations to have pledged to reduce global methane emissions to at least 30% below 2020 levels by 2030. Anglo American, which estimates it is capturing more than 42% of its mine methane emissions, will be a key pillar of this drive.

Anglo-Swedish green steel agreement

Anglo American’s attempts to future-proof its business have taken a further step recently with the signing of a memorandum of understanding with H2 Green Steel, a Swedish hydrogen and steel producer, to create low carbon steel. The agreement will see Anglo’s iron ore, sourced from its mines in South Africa and Brazil, used as feedstock for H2 Green Steels’s Boden plant.

The move forms part of Anglo’s ambition, set out in 2021, to reduce its scope 3 emissions by 50% by 2040, with the majority of these emissions linked to materials it sells to the steelmaking industry.

Anglo American published preliminary results for 2022 on 23 February. The report announced a 15% year-over-year revenue decline to $35.1bn and a 30% fall in underlying EBITDA to $14.5bn. Mining EBITDA margin fell from 56% to 47%, while attributable free cash flow fell by 80% to $1.6bn.

Anglo American’s share price fell 7.8% in the two days following the preliminary results.

Australia going green

Having long been a stronghold of coal production, Australia has begun to boost its green credentials.

Back in 2017, following a Twitter exchange with Australian software billionaire and climate activist Mike Cannon-Brookes, Elon Musk directed Tesla [TSLA] to install a 100MW battery within 100 days. That system has been driving the closure of Australia’s coal power stations, with solar, wind and hydro replacing them.

Mining and energy accounts for nearly 14% of Australia’s economy, however, and lithium is set to replace its coal industry as one of the foundational materials of the energy economy of the future. Australian government projections see lithium exports topping A$19bn by June 2028, overtaking coal shipments, which are expected to fall 71%, in the process.

However, despite last week passing targets to cut emissions from export plants by 4.9% per year, Australia has committed to maintaining its natural gas exports to Asia. Nations including Japan—which imports nearly half of its liquid natural gas from Australia—and China have voiced their concern over the reports that Australia is looking to cut its gas exports. However, resources minister Madeleine King told Bloomberg: “Australia can never consume as much gas as it produces.”

Funds in focus: iShares MSCI Global Metals & Mining Producers ETF

The iShares MSCI Global Metals & Mining Producers ETF [PICK] offers investors exposure to an index of miners of metals other than gold and silver. Anglo American is PICK’s sixth-largest holding as of 6 April, with a 3.78% weighting. The fund is heavily weighted towards BHP Group [BHP], which has a 13.99% weighting, relative to the 6.81% weighting of the fund’s second-largest holding, Rio Tinto [RIO.L].

PICK is up 1.5% year-to-date and flat over the past month.

With Anglo American’s share price having underperformed the broader sector through recent months, Barclays analyst Ian Rossouw upgraded the stock to ‘overweight’ from ‘equal weight’ on 3 April. Rossouw increased his price target to 3,250p from 2,900p, saying the pullback offers investors a buying opportunity.