Glencore enjoyed earnings growth of 60% in 2022, making a big chunk of the money from higher international coal prices and allowing it to shower investors with more than R120bn in cash dividend payouts and share buybacks.
The diversified miner and commodities marketer, which has a secondary listing on the JSE, increased coal output from its own mining activities by 7% to 110-million tonnes.
This was a major contributing factor to the 59% increase in adjusted earnings before interest, taxes, depreciation and amortisation (ebitda) of $27.3bn from its industrial operations. Earnings from coal mining accounted for about two-thirds of the total.
On the marketing side, the company achieved a record performance, posting adjusted ebitda, or core profit, of $6.4bn (up 73% from 2021) as it benefited from “extraordinary physical and financial market conditions.
“Our business overall benefited greatly from our strategic exposure to energy, via our industrial coal portfolio and oil marketing business,” CEO Gary Nagle said in the presentation of the results on Wednesday.
Energy prices were already at elevated levels towards the end of 2021 on account of supply underinvestment and tighter product availability, the group said. New developments in 2022, such as supply-side shocks due to the Russia-Ukraine war and rising interest rates from the US Federal Reserve, resulted in commodity prices, particularly energy, surging in the first half of the year.
“The global pandemic, recovery from it, and years of underinvestment, followed by conflict in Europe, exposed pre-existing vulnerabilities in energy security and supply chains […] which enabled the group to generate record profitability for the year,” Nagle said.
Coal prices, which were up 163% on average year on year, also saw the earnings margins on Glencore’s mined coal increase from 47% in the previous year to 65% in 2022.
The blockbuster earnings report allowed Glencore to return about $7.1bn (or about R126bn) to shareholders via a combination of dividends and the share buybacks.
The group attributed the 7% increase in coal production to higher output from the Cerrejón coal mine in Colombia, after the acquisition in January 2022 of the remaining two-thirds that Glencore did not already own.
There were, however, declines in coal production elsewhere, which meant that on a like-for-like basis, overall group production declined by 8.9-million tonnes (7%), “primarily due to wet weather challenges and an extended community blockade in Colombia”.
SA thermal production of 16.4-million tonnes was 18% lower than 2021, due to the disposal of the Middelburg mine (1.2-million tonnes impact), “wet weather challenges, and continued export rail constraints”.
Nagle said; “A particular concern for us has been Transnet and our ability to get our product down to Richards Bay. We have supplemented with some trucking but this has been costly.”
SA coal shipments through the Richards Bay Coal Terminal, where coal is mainly delivered via rail services provided by Transnet Freight Rail, dropped to a 30-year low of about 50-million tonnes last year due to persistent problems at the state-owned rail company.
“I believe it is a challenge that can be solved through public-private partnerships. Government must partner with the industry in some way so that it can be a partnership rather than a dependent relationship [between the industry and Transnet]. We are open and ready to engage through the Minerals Council to put something constructive in place,” Nagle told journalists.
Glencore’s guidance for 2023 puts coal production at the same level as 2022, at about 110-million tonnes with a possible positive or negative variance of 5-million tonnes.
Nagle said that even though coal prices have decreased significantly from highs of around $440/tonne (NEWC index), it is still trading at about $200/tonne, which is “a good number”. At these prices, coal is also competitive with prices for liquefied natural gas.
The company told investors in December that as part of its decarbonisation plans, it would close 12 of the 26 coal mines it owns across Australia, Colombia and SA by 2035.
Nagle said at the time that over the next decade, as it starts closing coal mines, it would look at increasing copper output.
Glencore has set an interim decarbonisation goal to reduce scope 1, 2 and 3 emissions by at least 50% by 2023.
“As we run down our coal business, we will continue to provide the critical minerals and metals needed for the decarbonisation of the world’s energy grid. We have significant growth prospects in copper, but also in cobalt and nickel,” Nagle said.
The miner produced 1.058-million tonnes of copper in 2022, down 12% from the previous year, but it has said that it could increase this by 60% to 1.6-million tonnes through “brownfield organic growth”.
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