Market Forces Assertion |
Response |
- …the remuneration structure still incentivises coal production growth in a manner that significantly exacerbates transition risk exposure and is inconsistent with the company’s stated support for the climate goals of the Paris Agreement.
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- Whitehaven’s strategy includes optimising yearly financial performance, investing in replacing production, and constructing projects that we believe will generate attractive returns for our shareholders under various decarbonisation scenarios.
- Many of our shareholders have invested in our business because project identification, advancement and efficient operation are significant competitive advantages for our company, and these projects have proven to enhance shareholder value over time.
- Whitehaven’s remuneration framework considers short-term production goals (with outcomes based on performance versus yearly budgets) and long-term project advancement, both to replace mines which are closing (due to finite mine lives) and to develop new projects with attractive rates of return.
- Supply and demand dynamics within the sub-types of coal Whitehaven produces (high CV, lower-emitting thermal coal, as well as metallurgical coal for steelmaking) are forecast to remain favourable for the foreseeable future. This data supports Whitehaven’s position that advancing projects at favourable rates of return remains important in serving key export partners who rely on our coal for energy security and infrastructure development during what will be a multi-decade energy transition, and will not result in our assets being stranded.
- In our industry, it is standard to incentivise production, as it is a key variable in optimising shareholder returns in the short and long term.
- This year our Werris Creek mine has closed, and Vickery has opened. Our project advancement plans align with various decarbonisation scenarios under the Paris Agreement, and we do not foresee stranded asset risk within our portfolio.
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- Overwhelming scientific evidence demonstrates that meeting the goals of the Paris Agreement requires no new or expanded thermal or metallurgical coal mines.
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- We acknowledge Australia’s commitment to net zero carbon emissions by 2050 and we align our decarbonisation ambition and business practices with the emissions reduction obligations set by the Australian Government, which support our national climate targets and align with the goals of the Paris Agreement.
- The goals of the Paris Agreement include holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce the risks and impacts of climate change.
- Various scenarios developed by independent organisations have put forward pathways to achieve the temperature goals based on certain assumptions relating to thermal and metallurgical coal mines. The assumptions underpinning these pathways do not necessarily consider the potential greenhouse gas (GHG) emissions reductions that could be achieved from co-firing with ammonia and biomass, and the use of carbon, capture and storage, both currently being explored by multiple countries. It also does not consider other decarbonisation pathway opportunities, which could deliver the same GHG emissions outcomes. Further, Net Zero emissions does not mean no emissions. Offsetting remains a viable method to reduce anthropogenic carbon emissions and indeed was provisioned for under Article 6 of the Paris Agreement.
- We believe the transition to a low-carbon economy will take decades, not years, and that decarbonisation must be considered alongside the need to support economic activity and growth while providing secure and reliable energy to underpin standards of living.
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- In 2021, 54% of shareholders voted against the company’s remuneration plan.
- In 2022, 21% of shareholders voted for the company to disclose plans to manage down coal production in line with a net zero emissions by 2050 scenario, and a similar resolution attracted an 18% vote in 2023.
- In 2023, 41% of shareholders voted against the company’s remuneration plan, 39% voted against the equity grant for CEO Paul Flynn, and 25% voted against the re-election of non-executive director Raymond Zage.
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- These numbers are intentionally over-stated.
- For example, at the 2023 AGM, 798 or 2.7% of all shareholders voted against the Remuneration Report. With a number of those shareholders holding large volumes of shares, 40.6% of votes cast by voting shareholders were against the FY23 Remuneration Report.
- It is not true to say 41% of shareholders voted against the remuneration plan. If that was the case, it would have required more than 12,000 shareholders to vote against the remuneration report compared with the actual number of 798 shareholders who voted against the remuneration report.
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- Whitehaven also remains firm in keeping total shareholder return (TSR) metrics out of the scorecard.
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- We are very proud of the TSR performance delivered for our shareholders in recent years, ending FY24 in the top third of ASX companies with a 23% TSR, and delivering the #1 position on the ASX 100 in both the 3-year and 4-year periods up to the end of FY2024.
- TSR is strongly embedded in Whitehaven’s remuneration framework in the following ways:
- Whitehaven’s senior executives each own a significant number of Whitehaven shares, which is supported by our minimum shareholding policy. For example, Whitehaven’s CEO, Paul Flynn owns more than one million shares and 2.5 million fully-vested rights in Whitehaven.
- The Single Incentive Plan (SIP) includes a significant proportion paid as equity, with deferred vesting and performance hurdles incorporated in the structure.
- Whitehaven has a minimum shareholding requirement for both senior executives and the Board.
- In addition, FY21 and FY22 legacy LTI grants have an absolute TSR gateway as part of the Long-term Growth Projects measures.
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- Of particular concern is the 17% weight afforded to the “long-term growth projects measure”, which incentivises progression of long-lived growth projects that face serious transition risk.
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- With Commodity Insights forecasting global demand for high CV thermal coal to grow by 25% between 2024 and 2040, while supply is expected to tighten, we do not foresee stranded asset risk within our portfolio.
- Commodity Insights forecasts global seaborne demand for metallurgical coal to grow by 28% from 2024 to 2040, underpinned by growth from India.
- Whitehaven’s long-term growth projects measure incentivises progression of four strategic development projects – the Vickery Extension Project, Narrabri Stage 3, Winchester South and the Maules Creek Continuation Project.
- Whitehaven will only pursue a long-term growth project if it has a minimum expected IRR of 15-25% on a post-tax basis. The IRR hurdle may vary by project, depending on the project’s risk profile. Each project’s minimum expected IRR needs to be matched with its risk, considering factors such as group synergy benefits.
- The commercial value of these projects is delivered through:
- Extensions and enhancements to mining operations that will replace reserves depleted by mining or increase ROM coal production, driving sustained productivity and revenue
- New initiatives that add to long-term coal reserves, including to replace mines that are closing, enhancing resource security and supporting operational sustainability
- Increasing production rates and our capacity for diverse coal products, enhancing market flexibility, ability to maintain and/or improve quality through blending, and resilience to changing markets.
- Both the Narrabri mine and Vickery Extension Project are expected to reach the end of their mine lives before 2050. Narrabri stage 3 will extend the mine’s life to 2044, which is also the end of its reserve life, and the proposed Vickery Extension Project has a life of approximately 20 years.
- While Maules Creek has sufficient reserves to mine until 2052, the Continuation Project will support the continuation of operations to approximately 2045.
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- Whitehaven’s expansion plans would result in its coal production increasing by over 80% by mid-2030s.
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- Whitehaven does not have plans to expand production by 80%. This is a vast overstatement.
- As noted, Whitehaven’s portfolio includes four strategic development projects – the Vickery Extension Project, Narrabri Stage 3, Winchester South and the Maules Creek Continuation Project.
- Narrabri Stage 3 and the Maules Creek Continuation Project are continuations of operations at broadly similar volumes.
- Vickery and Winchester South meanwhile represent incremental volumes when considered against the recent closure of Werris Creek and the planned closure our Tarrawonga Mine in 2032/3.
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- The total cost of these projects over the next ten years would be at least A$6 billion.
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- Whitehaven does not have a A$6 billion development pipeline planned. This is a vast overstatement.
- Whitehaven maintains a clear capital allocation framework that aims to maintain balance sheet resilience and deliver shareholder value.
- Capital expenditure decisions are made based on return hurdles and cost of capital, and are carefully weighed against other uses of funds, including shareholder returns through dividends and further buy backs.
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- The transition away from metallurgical coal is well underway.
- Electric arc furnaces (EAF) are set to account for over 36% of global steel capacity in 2030.
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- This is not reflective of the markets in which Whitehaven operates.
- Global steel demand is expected to increase, driven by urbanisation and economic development underway in developing economies, particularly India and Southeast Asia. All steel capacity additions planned in India, the second largest steel producing country after China, are of the Basic Oxygen Furnace (BOF) route, which requires metallurgical coal.
- Commodity Insights forecasts global seaborne demand for metallurgical coal to grow by 28% from 2024 to 2040, underpinned by growth from India.
- The recent 30% sell down of Blackwater to global steel producers JFE Steel and Nippon Steel and the associated long-term offtake arrangements reinforces the strong long-term demand for metallurgical coal from Australia.
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- Major Australian banks have introduced restrictions around lending to new metallurgical coal projects and metallurgical coal companies.
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- Whitehaven’s diversification into metallurgical coal has resulted in significantly increased support from credit providers.
- The US$1.1b acquisition facility was very well supported and over-subscribed.
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