Glencore’s recent failed $23 billion bid to acquire Teck Resources has signaled a potential shift in the company’s stance on coal, suggesting that the biggest shipper of coal may be considering exiting the business. While many competitors have withdrawn from thermal coal under pressure from investors, Glencore has continued to profit significantly from mining the dirtiest fuel. The company has argued that it is better placed than others to responsibly manage the decline in production over time.
Despite this, Glencore has proposed an all-share deal to acquire Canadian miner Teck and then spin off the combined companies’ coal operations into a new business. While Teck has rejected the proposal, Glencore has indicated that it is doubling down on the idea and seeking discussions with the other company’s management. This marks the first concrete sign that Glencore is considering exiting the coal business, which has faced pushback from some investors, with almost a quarter of shareholders voting against its climate report in October.
Glencore’s coal mines, which stretch from Australia to Colombia, have weighed on the share price, dampening its appeal as an ESG-compliant play. Moreover, these assets have been seen as a possible deterrent for any potential suitor for Glencore itself, at a time when the world’s biggest mining companies are finally regaining their appetite for mega-deals. Glencore is a significant producer of copper, nickel, and cobalt, all strategic metals viewed as critical to electrifying the world. However, the company’s current coal assets may be considered undesirable in the current climate.
Coal has traditionally vied with copper as Glencore’s most significant driver of earnings. Last year, high coal prices meant that it contributed $17.9 billion of profit, compared with $5.7 billion for copper. On Monday, Glencore revealed that the two combined coal companies would have posted a profit of $26 billion last year, while the base metal divisions would have made $16 billion.
While Glencore’s current plan is to run its coal business to closure by 2050, the Teck proposal signals that the company may see merit in spinning off coal. This is a departure from its previous stance, as Glencore had said it would only exit the coal business if a majority of its shareholders asked for it. George Cheveley, a portfolio manager at Ninety One UK, who owns both Glencore and Teck, noted that if the Teck proposal does not go through, people will ask whether it would make sense just to do a coal spin-off.
Glencore CEO Gary Nagle argued that the company’s proposal would create more value than Teck’s plan to split its business. “What we are doing here is something different, not just a vanilla divestment,” Nagle said. This is something that’s using the divestment of the coal assets to create value for Glencore and Teck shareholders.” The proposal offers a glimpse into Glencore’s future as it navigates the challenging landscape of ESG investing, balancing shareholder returns with environmental and social concerns.
