View of the Garzweiler open-cast coal mine with wind mills in the background in Luetzerath, Germany, November 2, 2022. Copyright 2022 The Associated Press. All Rights Reserved
Glencore is braced for a heated debate over its highly profitable coal-mining business when it meets shareholders this week as the group comes under pressure to tackle climate change. This content was published on May 25, 2023 May 25, 2023 Leslie Hook, Financial Times
A growing number of shareholders support a resolution asking the company to explain how its thermal coal production - the largest of any company outside China and India - is compatible with its climate goals.
Legal & General Investment Management, Allianz, Scottish Widows, Man Group and HSBC Asset Management have all backed the measure in recent days, as have proxy advisers Glass Lewis and Institutional Shareholder Services.
This Friday's annual meeting comes as Glencore's $23 billion hostile takeover bid for Canadian group Teck Resources has raised fresh questions about whether the Swiss miner might spin off its own coal business.
The division is highly profitable, accounting for 53 per cent of earnings last year, but is seen as dragging down Glencore's overall valuation because of the associated climate risks.
Glencore had proposed to buy Teck, then split the merged business into a separately listed coal company and a standalone metals company - admitting there was more value to be created that way.
“This deal for me marks an interesting departure for Glencore, who have up to now said they want to keep coal as part of the portfolio, but wind down the assets,” said Tal Lomnitzer, senior investment manager at asset manager Janus Henderson, one of Glencore's shareholders.“Whether or not this deal [with Teck] happens, the likelihood that they would split coal out has increased.”From Australia to South Africa
Glencore's coal resources stretch from Australia to South Africa to Colombia, and it primarily mines thermal coal, which is burnt in power plants. Producing 110mn tonnes of the fossil fuel a year, the company is the world's largest thermal coal producer outside China and India.
The Swiss miner and trading house, based in Zug, also has a vast network of metals mines and industrial facilities, including battery recycling, aluminium smelting and copper and cobalt mining. Its commodity trading arm ships raw materials around the world and trades products from crude oil to carbon; the division accounted for one-fifth of the group's earnings last year.
Glencore says it is focused on growing its metals business and producing materials such as copper, cobalt and nickel that are essential for the energy transition. Deals such as a $1.1 billion aluminium tie-up with Norsk Hydro, and plans to build Europe's largest battery recycling plant in the Italian island of Sardinia, are among its recent investments in this area. The company has also laid out plans to double its copper production.
By contrast, its coal strategy is to responsibly run down its existing coal mines to the end of their lifespans, planning to close 12 between 2019 and 2035. On current projections, the group will still be producing coal after 2040.
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However, a handful of shareholders have been calling since 2021 for Glencore to spin off its coal unit, owing to the climate risks and the very different growth trajectories of the coal and metals operations.
“When you look at the structure of Glencore, you see there is a lot of value trapped there,” said Chris LaFemina, analyst at Jefferies.“The coal business appears to be depressing the valuation of the entire business.” The miner's near-50 per cent stake in Viterra, an agricultural trading house, was also undervalued, he added.
Glencore's chief executive Gary Nagle - who cut his teeth running the company's coal business before taking on his current role two years ago - said that at present, shareholders wanted the coal business to stay inside the company. But if that position changed, he added, he would follow suit.
“If there was strong support from shareholders to divest, it is something we would do,” Nagle told investors in April.
Glencore has committed to reducing its emissions - both direct and indirect - by 15 per cent by 2026, and by 50 per cent by 2035, relative to a 2019 baseline. But it has refrained from setting a specific target for reducing coal output, which is its biggest source of Scope 3, or indirect, emissions.Tricky AGM
At Friday's AGM, the resolution on coal disclosure is set to throw all these issues into focus.
The resolution asks Glencore to disclose how its projected thermal coal production aligns with the Paris Agreement's target of limiting global warming to 1.5C, and to detail how the company's capex plans line up with those projections.
“This resolution is hugely important for assessing transition risk,” said Naomi Hogan, strategic projects lead at the Australasian Centre for Corporate Responsibility, which co-ordinated the resolution.“Both for now and for anything that happens next - for current shareholders and for future shareholders.”
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The resolution does not call for Glencore to spin out its coal business.
Glencore has opposed the motion, arguing that it seeks to influence strategy, which is a matter for the board, and that it is unclear.