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.