Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Glencore Plc’s rejected $23 billion proposal for Teck Resources Ltd. has offered the first concrete sign that the biggest shipper of coal — and for years one of its most vocal defenders — is thinking about exiting the business.
While many rivals have long retreated from thermal coal under pressure from investors, Glencore has continued reaping massive profits from mining the dirtiest fuel. In an interview just last month, chief executive officer Gary Nagle called coal “a necessary fuel for today,” and the company has argued that it is better placed than others to responsibly manage the decline in production over time.
Now, Glencore has proposed an all-share deal to acquire Canadian miner Teck and then spin off the combined companies’ coal operations into a new business. Teck has rejected the proposal, but Glencore indicated on Monday it is doubling down on the idea and seeking discussions with the other company’s management.
Glencore’s current plan is to simply run its coal business to closure by 2050. The company has previously said that it was only prepared to exit the coal business if a majority of its shareholders asked for it.
But the Teck proposal “shows that Glencore do see merit in spinning off coal, which they’ve never said before,” said George Cheveley, a portfolio manager at Ninety One UK Ltd., who owns both Glencore and Teck. “If they can’t do Teck, then people will ask whether it would make sense just to do a coal spin-off.”
The stance on coal has faced pushback from some investors, with almost a quarter of shareholders voting against its climate report in October. The company’s sprawling coal mines, which stretch from Australia to Colombia, have also weighed on the share price by dampening its appeal as an ESG-compliant play.
And the coal assets have also been seen as a possible deterrent for any potential suitor for Glencore itself, at a time when the world’s biggest mining companies are finally regaining their appetite for mega deals. Glencore is a major producer of copper, nickel and cobalt — all strategic metals seen as key to electrifying the world. However, industry leader BHP Group itself is in the process of slowly exiting coal, while others like Rio Tinto Group are out already.
Coal has traditionally vied with copper as Glencore’s biggest driver of earnings. Last year high coal prices meant it contributed $17.9 billion of profit, compared with $5.7 billion for copper. Glencore said Monday that the two combined coal companies would have posted profit of $26 billion last year, while the base metal divisions would have made $16 billion.
Speaking to investors, Nagle argued the Glencore proposal would create more value than Teck’s own plan to split its business.
“What we are doing here is something different, not just a vanilla divestment,” Nagle said. “This is something that’s using the divestment of the coal assets to create value for Glencore and Teck shareholders.”
(By Thomas Biesheuvel, with assistance from Jack Farchy)
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