September 19, 2024
Glencore ditches plan to spin off coal business after shareholders object #CashNews.co

Glencore ditches plan to spin off coal business after shareholders object #CashNews.co

Cash News

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Glencore has ditched a radical plan to spin off its coal business after shareholders objected, in one of the most striking examples of the shift in sentiment towards fossil fuels.

The FTSE 100 company last year set out a plan to list its highly profitable but polluting coal business in New York, a move that chief executive Gary Nagle said at the time would benefit shareholders.

However, on Wednesday Glencore said it would instead keep the business after a planned consultation with investors. The spin-off would have marked the biggest restructuring of the group since it bought mining group Xstrata more than a decade ago.

The decision comes after energy majors such as Shell and BP have recently stepped back from their efforts to woo environmental, social, and governance investors and instead promised to focus on their core oil and gas operations and boost returns to shareholders.

“The ESG pendulum has swung back over the last nine to 12 months,” Nagle said. “They [shareholders] recognise that cash is king.”

Coal enjoyed a resurgence after Russia’s invasion of Ukraine in 2022 led to an energy crisis in Germany, which had long relied on the Kremlin to supply much of its needs. The coal business has become a major profit engine for Glencore.

As part of the spin-off plan drawn up by Nagle last year, Glencore would have combined its own coal business with the steelmaking coal division of Canada’s Teck Resources, which it acquired a majority stake in for $6.9bn.

Glencore, which counts the Qatar Investment Authority and former chief executive Ivan Glasenberg among its largest investors, said it had canvassed the view of two-thirds of its shareholder base on the spin-off.

Keeping coal puts Glencore at odds with the strategies pursued by some of its major rivals. Anglo American has exited from thermal coal but still produces steelmaking coal, while Rio Tinto has left the business completely.

The burning of fossil fuels for energy and heating makes up the majority of greenhouse gas emissions behind global warming, with coal producing more than any other single source.

Glencore has long insisted that publicly listed mining groups are better placed to run down coal mines responsibly as the world decarbonises, rather than selling them to privately held companies that escape scrutiny.

Retaining its coal operations — and its cash flows — will give Glencore more financial firepower as dealmaking in the mining industry accelerates. Earlier this year, BHP failed in its attempt to buy Anglo American for £39bn.

Nagle said the current cash flow forecast “augurs well for potential top-up shareholder returns, above our base cash distribution, in February 2025”.

Glencore on Wednesday also reported earnings before interest, tax, depreciation and amortisation of $6.3bn for the first half, matching analysts’ forecasts but down a third from the same period a year ago.

Shares in Glencore were little changed in early trading on Wednesday.

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