Global commodities trader, Glencore has retained its money-spinning coal business as well as the carbon steel-making operations despite growing pressure from environmentalists to demerge the two units.
Coal has been a major income earner for Glencore, with energy and steel-making coal accounting for $2.7 billion (R49.6bn) of the company’s total earnings before interest, tax, depreciation and amortisation (Ebitda) of $6.3bn for the half-year period to June, 2024.
Bruce Williamson, a resource analyst at Integral Asset Management, told Business Report “coal is the biggest contributor” to Glencore’s earnings.
However, low prices have been impacting the company’s earnings, with Glencore’s coal operations recording a $2.7bn lower contribution to its industrial category adjusted Ebitda of $4.5bn, which was 39% softer in the half year to June compared to the previous year.
The earnings potential of the coal business, and Glencore’s stated desire to ramp up output of the energy commodity from the troubled South African operations, once rail and port challenges are addressed could have been influential in the company’s decision to retain the coal and carbon steel assets.
Glencore said yesterday that after a consultation process with shareholders, the company had decided to retain its coal and carbon steel businesses. The other option available was to demerge the two units although it had decided against this.
The decision to retain its coal and carbon steel assets provided it with “the optimal pathway for demonstrable and realisable value creation” for shareholders.
“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 Kalidas Madhavpeddi, chairperson for Glencore.
The Glencore chairperson added that the “expected cash generative capacity of the coal and carbon steel materials business significantly enhanced the quality” of Glencore’s portfolio by commodity and geography.
He said retention of the coal and steel businesses also broadened the company’s ability to fund its “strong portfolio of copper growth options” as well as accelerating shareholder returns.
After deciding to retain the coal and carbon steel materials business, Glencore has reset its net debt cap at around $10bn, excluding marketing-related lease liabilities.
“While the decision has been taken to retain this business today, the board preserves the option to consider a demerger of all or part of this business in the future, if circumstances change. Glencore will continue to oversee the responsible decline of its thermal coal operations over time,” said the company.
Other big and diversified global miners such as BHP and Anglo American have already started processes to dispose of their coal businesses. Analysts say BHP and Anglo American may have bowed down to pressure from shareholders, investors, and increased societal opposition to non-clean energy.
Glencore was also facing similar pressures from environmentalists. Some campaigners even want the company to wind down its coal mines now that it has decided to retain the assets.
Sebastian Rötters, an energy and coal campaigns analyst with global environmental lobby group Urgewald, said the decision by Glencore was welcome although he urged against opening of new coal mines by the company.
“A decision against a coal demerger is a good decision… Glencore should keep its coal mines and wind them down, providing just transition for coal workers and affected communities. This includes of course no more coal mine expansions and no new mines,” said Rotters.
In making the decision, Glencore consulted shareholders representing about two-thirds of eligible voting shares. It said more than 95% of the consulted shareholders supported the retention of the coal and carbon steel materials business, primarily on the basis that retention should enhance Glencore’s cash- generating capacity to fund opportunities in its transition metals portfolio, including copper.
Numerous other shareholders also “expressed scepticism” on the scale of a potential MetalsCo, constituted of the remaining business post the then proposed demerger of the coal and carbon steel businesses.
BUSINESS REPORT