Glencore scraps coal exit plan on investors’ pressure

Glencore (LSE: GLEN) followed shareholder opposition and scrapped on Wednesday plans to separate its coal division, which it had announced following its acquisition of assets last year from Teck Resources (TSX: TECK.A, TECK.B)(NYSE: TECK). 

Shareholders representing nearly two-thirds of eligible voting shares were consulted, Glencore said. Over 95% of those who expressed a preference supported retaining the coal and carbon steel materials business, primarily because they said it would enhance the firm’s cash generating capacity.

The Swiss miner and commodities trader committed on Wednesday “to continue to oversee the responsible decline of its thermal coal operations over time.” But CEO Gary Nagle said on a conference call to discuss first-half financial results, published alongside the coal decision, that the company may consider buying more steelmaking coal assets if the price, quality and location are right.

Glencore’s backpedaling on its coal exit did not come as a surprise to analysts, as investors had been pushing for the company to keep mining coal. The decision highlights the dilemma fossil fuel companies and their shareholders face. They are under pressure to reduce emissions, but doing so would mean giving up on the substantial profits they are still generating. The Baar, Switzerland-based firm is one of the largest producers and exporters of thermal coal, with an expected output of between 98 million and 106 million tonnes this year.

“Investors appreciate the strong cash flow from coal, particularly if it is channelled to capital returns/buybacks,” Bank of America analysts said in a July note.

Shares in Glencore closed 3% higher in London on Wednesday at £4.06 apiece, valuing the company at £48 billion. They’ve traded in a 52-week range of £3.65 to £5.07. 

Thermal coal 

Glencore had previously said it planned to run down its thermal coal mines by the mid-2040s, closing at least 12 by 2035. The company said in November it would merge Teck’s steelmaking coal business with its own coal assets, after which it would separate the combined unit. 

In its 2024-2026 Climate Action Transition Plan, Glencore noted it was still “on track” to meet its 15% reduction of carbon dioxide-equivalent emissions for its industrial assets from 2019 levels by the end of 2026, and by half at the end of 2035.

Glencore’s business has long been centred around coal, and the prospect of abandoning it seemed improbable for a company built on the commodity. Ivan Glasenberg, Glencore’s CEO for two decades, was a former coal trader who frequently highlighted the unquenchable demand from Asia, even as the West sought to distance itself from coal.

“A decision against a coal demerger is a good decision,” Sebastian Rötters, energy and coal campaigns coordinator at Urgewald, a fossil fuel industry watchdog based in Germany, said in an emailed statement. “Glencore should keep its coal mines and wind them down in line with the [International Energy Agency] net zero scenario, providing just transition for coal workers and affected communities. This includes of course no more coal mine expansions and no new mines.”

Pro and con 

Simon Nicholas, from the Cleveland-based Institute for Energy Economics and Financial Analysis, agreed. He said a coal spin off would have meant Glencore losing control over its Scope 3 emissions — those generated from assets not owned or controlled by a company.

“Previous divestments of coal assets by diversified miners have put control in the hands of pure-play coal miners that have optimistically bullish outlooks with plans to increase production,” Nicholas wrote in May.

Juan Pablo Gutiérrez, with the National Indigenous Association of Colombia and the Yukpa indigenous people, said he was dissatisfied with the decision.

“Glencore’s investors only seek to maximize their profits, wanting to keep all coal assets under one roof,” Gutiérrez said in an emailed statement. 

“For the indigenous communities affected by its coal mines, such as the Yukpa and Wayúu [in Colombia], the real solution is for Glencore to close its mines and immediately assume its social and environmental responsibilities.”