Glencore: FTSE 100 mining giant opts against coal spin-off after investor feedback
Glencore no longer plans to demerge its coal business after an “overwhelming majority” of shareholders told the mining giant to retain the division.
The FTSE 100 constituent had planned to spin off its coal business after it completed the $7bn (£5.51bn) acquisition of Teck Resources’ steelmaking coal business in November last year. However, on Wednesday, it rowed back on those plans.
The group said its shareholders had “endorsed retention… of the coal and carbon steel business… as providing the optimal pathway.”
Gary Nagle, Glencore’s chief executive, said: “Following the completion of EVR [Teck’s coal business] in early July, we undertook an extensive consultation with shareholders and based on the outcome of that process and the group’s own analysis, Glencore’s board, considering both risk and opportunity scenarios, endorsed the retention rather than demerger of the coal and carbon steel materials business.”
The FTSE 100 mining giant also published its half-year results today. Glencore posted a nine per cent jump in revenue from $107bn (£84bn) to $117bn (£92bn).
But it also slid to a net loss and suffered a 33 per cent fall in earnings before interest, tax, debt and amortisation (EBITDA).
It said the slide in performance was largely due to lower average prices for many of Glencore’s key commodities, most notably thermal coal, which has plummeted in value in recent months due to oversupply and weak demand.
It reported a net loss attributable to shareholders of $233m (£183m) and a loss attributable to liabilities of $1bn (£787m) in its trading division. Its net debt to adjusted EBITDA ratio fell 10 per cent to 0.26.
But it added that the loss notwithstanding, its free cash flow generation of $6.1bn (£4.8bn) “augers well” for its full results set to report in February next year.
Nagle added: “”Against the backdrop of lower average prices for many of our key commodities during the period, particularly thermal coal, our overall group Adjusted EBITDA of $6.3 billion (£5bn) was 33 per cent below the comparable prior year period, however funds from operations were up nine per cent, due to the timing of income tax payments .
“The strength of our diversified business model across marketing and industrial has proven itself adept in a range of market conditions, giving us a solid foundation to successfully navigate the near-term macroeconomic uncertainty.”
Move that ‘may raise eyebrows’ shows the ‘pressures of ESG have evolved’
Glencore’s decision to reverse plans to jettison its coal division is the latest evolution in the miner’s balancing act when approaching environmental, social and governance (ESG) issues.
Despite the move having the backing of an “overwhelming majority” of investors, in June, several Legal and General investment funds sold their respective stakes in the mining giant over fears its divestment from coal was taking place too slowly.
“Following shareholder consultation, Glencore has opted to keep its cash generative coal business, which is not of great surprise,” said Ben Davis, European mining analyst at Panmure Liberum.
“The pressures of ESG have evolved and investors approve of its plans to wind down the coal business responsibly… [Its] marketing business is still going strong with $1.8bn (£1.4bn) EBITDA, with the strength in the metals division offsetting the weakness in energy.”
Meanwhile, Russ Mould, investment director at AJ Bell, commented: “[Glencore’s] decision to retain its coal assets is one that may raise eyebrows.
“The company and a large number of its investors… clearly still see a place for coal in its portfolio of assets. The retention is being sold on the basis it will enhance cash generation and allow the business to invest in its energy transition assets.
“However, whether this will pass muster with institutions which place a strong emphasis on ESG factors… an open question.”
Glencore shares were up three per cent at 3 15pm UK time on Wednesday.