Ashly DhaniGlencore Plc has abandoned plans to spin off its coal unit just nine months after saying it would exit the profitable but polluting business, following discussions with its shareholders who pushed back against the move.
When Glencore announced it was spinning off coal late last year it marked a watershed moment in the mining industry, as the biggest shipper of coal — and one of its biggest champions — prepared to follow its rivals in exiting.
Glencore’s investor-led U-turn highlights the ongoing conundrum facing fossil fuel companies and the shareholders that own them. From coal to oil, producers have come under pressure to cut their emissions — but that would mean missing out on the bumper profits they’re still pumping out.
For many investors, Glencore offers a unique proposition: huge coal profits being generated by a miner that also produces the metals like copper needed to decarbonise the global economy. The company has spent the last month consulting shareholders and the majority of those that expressed a clear opinion were in favour of keeping the coal business, Glencore said on Wednesday.
“Following extensive consultation with our shareholders, whose views were very clear, and our own analysis, the board believes retention offers the lowest risk pathway to create value for Glencore shareholders today,” said Chairman Kalidas Madhavpeddi.
Glencore’s coal business is one of its most profitable units, driving record returns in recent years. It has benefited significantly from the energy crisis in the wake of Russia’s invasion of Ukraine, as well as a dearth of new production as rivals and banks turn their back on the sector. And while the west is seeking to wean itself off the dirtiest fuel, global demand for coal is at record levels.
Glencore’s two biggest investors are former chief executive officer Ivan Glasenberg and the sovereign wealth fund of Qatar, according to data compiled by Bloomberg.
Glencore reported core first-half earnings of US$6,34 billion, down 33 percent from a year earlier. Its sprawling commodity trading business also reported a sharp drop in earnings as the volatility that its traders thrive on began to fade, with profit of US$1,5 billion in the first half.
Coal has always formed a central part of Glencore’s business. The company had said repeatedly that it would exit if there was pressure to do so from investors, but for years under Glasenberg and then his successor Gary Nagle, the company kept digging up coal while most of its biggest rivals sold out. (Glencore’s plan was instead to run its existing operations until they were depleted.)
That appeared to change when Glencore tried to buy Teck Resources a year ago, with a proposal to split the combined company into two separate coal and metals producers.
Glencore failed to win Teck, but it did walk away with its coal mines as a consolation prize. It announced at the same time that it planned to separate out the coal business anyway two years after the deal closed. The decision was based on positive feedback from investors to its original plan for Teck, the company said on Wednesday.
Yet over the months that followed, it became increasingly clear that investors were not ready to say goodbye. Bloomberg reported in April that some of the company’s top holders favoured keeping the coal business.
The reasons expressed by investors in favour of keeping coal were largely that “retention should enhance Glencore’s cash generating capacity to fund opportunities in our transition metals portfolio, such as our copper growth project pipeline, as well as accelerate and optimise the return of excess cash flows to shareholders,” the company said Wednesday.
If Glencore had gone ahead with its plan, many investors — including no. 4 shareholder BlackRock — would have seen their exposure to the profitable coal business cut off because of policies that prevent them from owning pure-play coal companies. — Bloomberg
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