BHP Billiton not that bullish long term on thermal coal

A couple of years back Sasha found this article which derived the term Mesofacts. It was coined by a fellow called Samuel Arbesman who now has a blog called mesofacts.org. Here is the definition of a mesofact from the website.


"When people think of knowledge, they generally think of two sorts of facts: facts that don't change, like the height of Mount Everest or the capital of the United States, or facts that change a lot, like the weather or the stock market close. But in between there is a third timescale, with its separate category of facts: facts that change slowly, or mesofacts. This middle, or meso-, scale, of facts are the most interesting and yet the most slippery with which to be acquainted. These change over the course of a single lifetime but we tend to nonetheless view them as constant."


Here at Vestact we base our investment philosophy very much on finding mesofacts whether it be an investment opportunity or a warning sign to get out or stay out of certain investments. With that in mind I came across this Reuters article titled Tighter regulation pushes miners to cut thermal coal exposure. The article interviews Marcus Randolph, head of BHP's coal and Iron Ore operations. This is what he said: "Do you really think, in 30 or 40 years, that 42 per cent of the world's electricity is going to be generated with the incredibly carbon-inefficient coal? I think the answer is probably not."


At this stage coal is the world's top fuel for power generation because it is cheap and there is lots of it, especially here in SA which has really helped us with electricity supply over the decades. But like Marcus Rudolph I certainly agree that coal use is going to decline, Rio Tinto also said they will slow spending in the sector.


So what do we do as investors? BHP Billiton are one of the world's biggest coal miners but fortunately they also see mesofacts. You see, if you invest in good companies with good management teams they do the hard work for you. Although it was badly timed Billiton bought billions of dollars worth of gas assets, what I believe will be coals main replacement. Divesting from coal, investing in gas, shifting and adapting with the times. Our other investment with coal exposure is Sasol. If you read yesterday's message you will know that they are planning ginormous expansions into gas so they are already on top of it.


The last coal dependant entity which affects our lives is our very own Country. That is why, as someone who is very environmentally conscious, I support fracking. Of course all the relevant provisions and safety's must be worked out but unfortunately for the Karoo farmers, unless there is an alternative found, gas is the future.