Own South32 shares? Here’s why the miner’s latest coal plans have been called ‘highly disturbing’

The miner has come under fire from environmentalists over its latest plans.

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Coal miners look resigned to the end of mining this resource

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Key points

  • South32 is facing criticism regarding its plans to extend the life of its Illawarra coal mine
  • An environmental group claims the plans pose a risk to the Sydney and Illawarra drinking water catchment
  • The South32 share price has gained 16% this year to date and is again in the green this morning

The South32 Ltd (ASX: S32) share price performance will give investors reason to smile. But the miner’s latest coal expansion plans have drawn sharp criticism from environmentalists who warn it could threaten Sydney’s drinking water.

Shares in the diversified miner have jumped 16% since the start of the year — including a 2.26% gain this morning to $4.745 — while the S&P/ASX 200 Index (ASX: XJO) has lost more than 3%.

The South32 share price is even beating its bigger peers this year. The BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price have added around 12% each over the period.

Coal cloud hangs over South32 shares

But not everyone is happy with South32. Its new plans to extend the life of its Illawarra coal mine have been called “highly disturbing” by the New South Wales Lock the Gate spokesperson, reported the Australian Broadcasting Corporation.

The miner wants to dig out an extra 5.2 million tonnes of coal a year from the Dendrobium colliery until 2035. It is also aiming to upgrade and extend the existing mine infrastructure so it can keep using it until 2041.

Given where coal prices are, that should be good news for shareholders. But environmentalists are alarmed because the mine is under Sydney’s water catchment.

What’s more, South32 is proposing using the more damaging longwall method to extend the life of the mine. The board and pillar technique is seen to be less damaging.

“This is a highly disturbing situation in NSW — it’s unprecedented and the risks are very great to the Sydney and Illawarra drinking water catchment,” the ABC quoted New South Wales Lock the Gate coordinator Nic Clyde as saying.

South32 shares caught between politics and science

South32’s coal expansion proposal had already been granted State Significant Infrastructure (SSI) status when it submitted a more aggressive original plan. The original proposal, which was to extract 78 million tonnes of coal by 2048, was rejected by the Independent Planning Commission last year, reported the ABC.

Clyde also believes the state government approval process for the expansion is political and not evidence-based.

But South32 is trying to allay concerns about the environmental impact of the mine expansion. It said its revised plan reduces surface water losses by 78% and will offset the water losses.

South32’s improved expansion proposal

It is estimated that the water loss will be less than 1% of the Avon and Cordeaux catchment yields.

The mine’s footprint will also be 60% smaller under the new plan compared to the original proposal.

But this is unlikely to appease environmentalists. While Clyde welcomes the move to limit the impact of water losses, he is unconvinced the mine won’t threaten Sydney’s drinking water supply.

“The simple fact is South32 want to continue longwall mining that will further damage a special area of the water catchment and will still result in significant water loss,” he said.

“It just doesn’t make sense to risk these areas and our fresh water supply in perpetuity.”

Motley Fool contributor Brendon Lau has positions in BHP Billiton Limited, Rio Tinto Ltd., and South32 Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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