Coal Giant Glencore
wants Out in Coal Trade
Glencore has set in motion a plan
to quit coal, leaving it to focus on green metals
·
Glencore
this past Tuesday agreed to a multibillion-dollar deal that will eventually rid
it of its coal mines.
·
Bolstering
its position as a major supplier of the metals needed for electric-vehicle batteries
and other green technologies.
·
Glencore
will first pay $6.93 billion for a 77% stake in Canadian miner Teck Resources’ coal
business. The deal will marry Teck’s assets in metallurgical coal, the kind used
in steelmaking.
·
Glencore
then intends to spin off the combined coal business within two years of the deal’s
closing.
Glencore
Chief Executive Gary Nagle made his name running the commodity giant’s sprawling
coal operations. Now he’s leading an effort to get the company out of coal altogether.
Glencore
this past Tuesday agreed to a multibillion-dollar deal that will eventually rid
it of its coal mines, a move that represents the company’s biggest strategic shift
in years. That leaves it to focus on bolstering its position as a major supplier
of the metals needed for electric-vehicle batteries and other green technologies.
“We
have some of the best future-facing metals in the world,” Nagle said this past week,
referring to Glencore’s nickel, copper, cobalt and zinc assets. “This will be the
go-to metals transition company in the world.”
The
challenge for Nagle is to pull off a smooth exit from coal, which has long been
a key pillar of the company and generated more than half of Glencore’s adjusted
profit last year.
Under
the plan set in motion Tuesday, Glencore will first pay $6.93 billion for a 77%
stake in Canadian miner Teck Resources’ coal business. The deal will marry Teck’s
assets in metallurgical coal, the kind used in steelmaking, and Glencore’s business
in mostly thermal coal, which is burned to generate electricity.
Glencore
then intends to spin off the combined coal business within two years of the deal’s
closing.
Glencore
has been an outlier among major resources groups in sticking with thermal coal.
Many large mining companies in recent years have reduced their exposure to the commodity
amid pressure from investors, governments and consumers to cut greenhouse-gas emissions.
Nagle
has said the world still needs energy as it transitions, which Glencore’s coal assets
were helping provide. The company also had said it planned to run down the coal
mines by 2050.
The
thinking now is that jettisoning coal assets could help boost the value of Glencore’s
shares, which some investors have shunned because of the company’s exposure to the
commodity.
Glencore
plans for the new stand-alone coal business to have its primary listing in New York.
Nagle has previously said U.S. investors are more pragmatic and focused on returns
compared with Europe, where decisions seem more influenced by environmental, social
and governance concerns.
Some
analysts estimate the new coal company could be worth between $22 billion and $35
billion when it lists, a far higher valuation than even the largest U.S. coal companies.
To
be sure, market conditions could change in two to three years, says George Cheveley, who runs a London-based fund that invests in natural-resources
companies. Still, he believes spinning out coal will “remove an area of uncertainty”
for Glencore and allow it to focus on expanding its metals business.
Glencore
already accounts for around 5% of the world’s mined supply of copper and about 20%
of the world’s cobalt, according to analysts at UBS. It is the biggest non-Chinese producer of cobalt in the world. Cobalt is a metal
used in electric-vehicle batteries, cellphones and jet
engines.
Glencore
is based in Switzerland and its shares are listed in London. Shares have risen more
than 8% since the coal deal with Teck was announced, though they are still down
around 14% this year.
Founded
as Marc Rich & Co. in 1974, Glencore initially traded metals, minerals and crude
oil. The U.S. attorney’s office in Manhattan later indicted Rich, partner Pincus
Green and the company on 65 counts, including buying oil from Iran during the 1979
hostage crisis. President Clinton, just before leaving office in 2001, pardoned
Rich and Green.
The
company became known as Glencore after Rich sold his stake in the early 1990s. It
predominantly focused on trading until it merged with miner Xstrata in a landmark
deal that, once completed in 2013, established one of the world’s largest coal,
copper and zinc producers.
Nagle,
a 48-year-old South African, joined Glencore in 2000. During his career at the company he has run the coal division in Colombia, ferroalloys
assets in South Africa and the global coal business from Australia.
He
became CEO in 2021, succeeding longtime leader Ivan Glasenberg. Glasenberg, a former coal
trader and outsize character in the mining industry, still owns about a 10% stake
in Glencore, according to FactSet. During his tenure Glasenberg
snapped up copper assets but was steadfast in his defense
of coal.
Since
taking the top job, Nagle has worked to burnish Glencore’s reputation after the
company in 2022 said it would pay at least $1.2 billion in fines and that two business
units would plead guilty to bribery in the U.K. and to conspiracy to violate U.S.
anticorruption laws.
Those
issues continue to linger, with a group of institutional investors pursuing damages
from Glencore for allegedly making misleading statements or omissions about corrupt
activities.
The
company has said it has made extensive efforts to improve its compliance culture
in recent years. A spokesman declined to comment on the investor allegations.
Nagle,
while more understated than Glasenberg, is similar to
his predecessor in some ways, according to investors and people who have worked
with the men. Both, for instance, savor the financial
nitty-gritty of the company’s operations and deal making.
Nagle
earlier this year dived into his first big deal, proposing a roughly $23 billion
merger with Teck. The proposal, which would have created two separate businesses
for the companies’ merged metals and coal operations, was rejected twice by Teck
in April.
At
the time Teck raised concerns about Glencore’s thermal coal business, as well as
its oil-trading operations and potential geopolitical risks in certain countries
where it operates.
In
June, Glencore proposed a bid solely for Teck’s coal assets, regarding the tie-up
as a way to create a more attractive company for a potential listing.
At
the same time, Nagle has been working to boost Glencore’s exposure to critical minerals.
The company recently agreed to take over an Argentina copper project and has struck
a series of deals to trade lithium. It is also looking to expand its foothold in
metals recycling.