Glencore to Retain Coal Assets and Maintain London Listing, Reports Reuters

By Felix Njini and Pratima Desai

JOHANNESBURG/LONDON – Glencore has decided to retain its coal business following significant support from a majority of its investors, who see promising profits from the fossil fuel. CEO Gary Nagle noted that the company may also pursue additional acquisitions in the steelmaking coal sector.

Previously, Glencore had consulted its investors about potentially spinning off its coal assets but reported a first-half net loss of $233 million due to one-time items, including approximately $1 billion in impairment charges.

Nagle expressed that the company is "comfortable" maintaining its primary listing in London, although it would explore other options if there were significant changes warranting a switch to another exchange, as U.S. valuations are generally higher.

Recently, Glencore finalized the acquisition of Teck Resources’ coking coal assets, and Nagle emphasized that support from its European investors for retaining coal operations has been strong. Data suggested that investors were eager for Glencore to remain in the coal mining sector.

With limited investment in new coal projects and the continued relevance of fossil fuels in the energy mix, tight supplies and high prices are expected to sustain Glencore’s profitability. "The coal business generates significant cash, which we can use to reward shareholders through buybacks and dividends," Nagle remarked.

Despite some environmental concerns from investors easing over the past year, Nagle indicated that Glencore could consider expanding its steelmaking coal capacity but did not confirm any interest in Anglo American’s Australian coal assets now on sale. He stated, "At the right price, in the right geography, in the right quantity, we would contemplate additional acquisitions of steelmaking coal."

Following this announcement, Glencore’s shares rose by 3.1%.

OPTIONS

The revenue generated from coal could enable Glencore to enhance its capital reserves while providing returns to investors and possibly financing new deals, including a potential acquisition of some or all of Anglo’s steelmaking coal assets for sale, according to analysts from Jefferies. However, increasing its coal exposure could worsen Glencore’s equity valuation.

The analysts noted that relocating its primary listing to the U.S. could be advantageous for Glencore, as coal stocks listed there have experienced significant revaluation over the past two years. Previously, Glencore surveyed investors regarding the retention or spin-off of its coal assets, especially after acquiring a majority of Teck’s steelmaking coal business.

Retaining the coal operations, according to Glencore Chairman Kalidas Madhavpeddi, "offers the lowest risk pathway to create value for Glencore shareholders today."

For the first half of the year, core earnings (EBITDA) decreased by 33% to $6.3 billion, impacted by declining prices for key commodities. The adjusted EBIT for Glencore’s marketing division amounted to $1.5 billion, down 16% from the previous year, with an annualized projection of $3 billion, reflecting reduced contributions from energy sectors.

The Swiss-based company anticipates its marketing EBIT will be between $3.0 billion and $3.5 billion for the year. Analysts from Citigroup noted that the marketing business suggests a full year EBIT run rate of $3.5 billion, which they consider solid in the context of the company’s long-term guidance.