Glencore gets dirty gift from Anglo American

July Ndlovu, the boss of Anglo American Plc coal spin-off Thungela Resources Ltd, did his rival Glencore Plc a big favour earlier this year. When Thungela began trading as a separate company in June, Ndlovu told Bloomberg he wanted to increase output of the fossil fuel: “I didn’t take up this role to close these mines.”
Glencore is the last of the really large listed miners committed to retaining a big footprint in thermal coal (the kind burned in power stations). It’s long taken the position that simply spinning off those assets does nothing to help the climate and might actually make the problem worse. Ndlovu, then, was proof that the London-listed mining and commodity trader’s warning wasn’t just hot air to avoid spinning off a coal business that at the current high prices accounts for almost 30% of its earnings before interest taxation, depreciation and amortisation.
Glencore’s alternative plan is to cap coal production and manage the decline of those assets to reach net zero emissions by 2050. It will leave some of its coal resources in the ground.
So, when activist shareholder Bluebell Capital Partners Ltd demanded a separation of Glencore’s coal activities to boost the commodities giant’s valuation, new boss Gary Nagle had a killer argument ready.
At an investor event, Nagle pushed back against Bluebell’s thesis quite effectively. The message was simple: Glencore won’t exit coal unless its major shareholders decide they want that. And right now, they’re fine with the way things are.
At this year’s annual meeting, 94% of shareholders approved Glencore’s climate plan, which involves cutting emissions (including those that arise when its coal is burned) 15% by 2026 compared to 2019 levels; the goal is a 50% reduction by 2035 and to reach net zero by 2050. Management said none of its large investors were demanding a coal-spin off.
Bluebell’s frustrations are understandable: Glencore is valued at a miserable seven times estimated earnings. And I’ll admit I, too, thought Glencore should just dump coal. In an ideal world I’d rather it shut those mines down tomorrow. Every lump that gets burned makes the climate crisis worse.
Glencore is transparent about its carbon pollution and it’s pretty ugly: scope 3 greenhouse gas emissions (the ones mostly related to customers burning its fossil fuels) were 343 million tons of carbon equivalent in 2019, which is nearly 1% of the global total. Its coal production will actually increase next year after Glencore decided in June to buy out its partners, Anglo and BHP Group, in a Colombian coal mine, a deal that will quickly pay for itself thanks to soaring coal prices.
Though Glencore says it knows of only one large investor, Norges Bank, that won’t invest for climate reasons, mining coal makes its other ESG arguments ring rather hollow. And given the corruption investigations it’s facing in several jurisdictions, Glencore could do without another reason for shareholders to shun the company.
The rest of its mining assets, copper, zinc, nickel and cobalt, are vital for things like electric-car batteries and power-transmission lines. From a climate perspective it’s fortunate Glencore doesn’t mine iron ore used in steelmaking, which is harder to decarbonise. Why not just focus on those? But Nagle makes a good case for why that’s not a responsible approach.

—Bloomberg