More than 90% of Glencore’s shareholders have rejected the company’s plans to unbundle its coal and carbon steel business, essentially telling it to use windfalls from coal to fund its just transition plans and return excess cash to shareholders.
Glencore last year outlined plans to spin off its coal business, after acquiring the metallurgical coal business of Canadian company Teck, known as Elk Valley Resources, for $6.9bn.
The group offered thermal coal production guidance of between 98-million and 106-million tonnes in the 2024 financial year. Now, the company has not ruled out the option of buying more coal assets.
Coal mining contributed almost a third of the group’s core earnings, generating $1.8bn in the six months ended June.
Glencore CEO Gary Nagle said that the overwhelming view of shareholders was that retaining the coal business would “enhance Glencore’s cash generating capacity to fund opportunities” for the transition metals portfolio, such as its copper growth pipeline, as well as “accelerate and optimise the return of excess cash flows to shareholders”.
The SA-born and trained executive said the Elk Valley deal, which it concluded in July, was a “once in a generation” transaction, with the group now assessing how best to integrate the assets into the group’s climate transition strategy.
Nagle added that the retention of the coal and carbon steel business offered the group larger scale and diversification by commodity and geography, which was expected to provide the ability to accelerate and optimise the return of excess cash flow to shareholders and support stability of returns through the cycle.
“Elk Valley is a tier-1 best-class asset; we are very pleased with what we bought. We are very fortunate to have bought such a quality asset and at an attractive price. The asset is low cost, high quality and long life in a terrific geography,” he said, adding that Elk Valley would add 20% copper equivalent to the group’s output in 2025.
“The amount of times in this industry that one has an opportunity to buy a tier-1 asset of this quality is a once in a generation opportunity. It is still early days, but we see potential upside for the business through synergies.”
Asief Mohamed, chief investment officer at Aeon Investment Management, said: “I am not surprised as major shareholders have been telling Glencore not to demerge the coal assets. Coal remains a significant revenue generator and keeping these assets provides a stable cash flow and good returns.”
Chantal Marx, head of investment research and content at FNB Wealth & Investments, said: “It seems as if this direction was preferred by shareholders for two reasons. First, this business is highly cash generative and will be able to fund growth in other areas and enhance cash returns to shareholders; and, secondly, the company is already pursuing a ‘responsible thermal coal decline strategy’ so the exposure to ‘dirty coal’ will be phased out anyway.”
The announcement came as Glencore reported its half-year earnings. Against the backdrop of lower average prices for many of its commodities, particularly thermal coal, overall group adjusted earnings before interest, tax, depreciation and amortisation of $6.3bn was 33% below the comparable prior year period.
Revenue was 9% higher at $117.1bn, while funds from operations were up 9% at $4bn due to the timing of tax payments. The group reported a net loss attributable to shareholders of $233m after recognising $1.7bn of significant items, including about $1bn of impairment charges. Net debt, including marketing-related lease liabilities, stood at $3.6bn compared with $4.9bn at the end of 2023.
Nagle said the group was excited about its copper capabilities; Argentina was derisking under its new presidency, and the group’s brownfield projects would double the group’s current copper output.
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