Glencore’s message to the planet

IN “THE QUESTION OF COAL”, written in 1865, William Stanley Jevons, a British economist, attributed “miraculous powers” to the fuel source that fuels the Industrial Revolution. Coal, he wrote, was entirely above all other commodities. These were his superpowers, he worried about the consequences for Britain if he ran out of material. He didn’t need to worry. Not only did the coal prove to be impossible to deplete. More than a century and a half later, the biggest source of carbon emissions is devilishly difficult to eliminate.

In 2021, the world, which was supposed to “make coal history” during the UN‘s COP26 climate summit, probably consumed more electricity from coal than ever before, the International Energy Agency, the world’s leading energy forecaster, said in December. Strong demand pushed coal prices to record highs in October 2021. The momentum is expected to continue through 2022, especially as coal is a substitute for natural gas, the price of which has continued to rise around the world. soar as New Years approaches.

The bad news for the planet has been good for the coal producers. With ore on the rise, no major Western mining company has done as well for shareholders in the past 12 months as Glencore, the diversified mineral and metals producer valued at $ 66 billion who, since 2018, has recovered. coal assets sold by peers such as Rio Tinto, BHP and Anglo-American. Quietly, given the increasingly filthy reputation of coal, the Switzerland-based company is one of the most resolute champions of the unloved ore.

This makes a campaign by a small activist fund, Bluebell Capital, which tries to force Glencore to divest its coal assets, an intriguing opportunity to examine shareholder attitudes towards coal. Only a few years ago, investors, especially those dealing with the environment, social and governance (ESG) mandates, were virtually unanimous in the opinion that big miners should get out of the dirtiest fossil fuel. Now they take a different point of view. It may be a matter of principle. It is also a sign of the inconstancy of investors when they ESG the objectives conflict with the objective of maximizing financial returns.

Diagnosing Bluebell is straightforward. He says Glencore’s decision to hang on to certain coal assets until 2050 is “morally unacceptable and financially flawed.” He believes the company’s exposure to coal has lowered its valuation, overshadowing the promising role its other mining assets, such as copper and cobalt, are playing in the clean energy revolution. He sees the nomination of Gary Nagle, only the fourth CEO in Glencore’s 47-year history following the departure of Ivan Glasenberg in June, as a unique opportunity to change course. Eliminating the “coal discount” and further simplifying the business could put another 40-45% in shareholders’ pockets, he estimates.

So far so simplistic. What it lacks, however, is a drastic shift in investors’ perspective on the wisdom of owning coal. After Rio Tinto became the first major miner to abandon coal in 2018, rivals, including Glencore, all presented plans to reduce or end their exposure to coal. In mid-2021, Anglo took the most important step by divesting its South African coal assets to a newly listed company, Thungela Resources. Shareholders applauded every step of the way.

Then the unexpected happened. Thungela shares, after a difficult start, quadrupled in value in a matter of months. Glencore, shortly after 94% of shareholders approved its coal reduction plans, bought out joint venture partners Anglo and BHP in a Colombian coal mine that will increase its overall production from around 104 million tonnes in 2021 to 122 million tonnes within two years. BHP reportedly put its withdrawal from thermal coal under review due to rising prices and changing investor attitudes. Sign of the times, Bravus Mining and Resources, a subsidiary of Adani Group, an Indian conglomerate, announced on December 27 that it was preparing to export coal from the Carmichael mine to Australia for the first time. He overcame a decade of opposition from environmentalists to bring the project to fruition.

Among investors, the turnaround came from above. In 2020, BlackRock, the world’s largest fund manager, pledged to remove mining companies that generated more than a quarter of their income from thermal coal from its active investment portfolio. While he still owns huge passive stakes in coal miners (including the second largest in Thungela), this was a strong signal for divestment. Since then, however, some investors, including BlackRock CEO, Larry Fink, came to the conclusion that in private hands, fossil fuel assets are likely to be managed less responsibly and more opaque than in public markets. The mines could be expanded rather than gradually closed as Glencore promises to do with its coal assets. Its advocates say this is one of the main reasons Bluebell’s campaign appears to have fallen on deaf ears.

They’re right. Still, as long as the high price of coal adds billions to Glencore’s cash flow and lines the pockets of shareholders, the argument is equally interesting. It is not clear that investors would be so magnanimous if prices plunged.

Indeed, it is a safe bet that Glencore is more committed to coal than are its shareholders. While many people concerned about climate change see the energy transition as a one-way street from coal, possibly via natural gas, to zero-carbon sources of electricity, the company is resolutely pragmatic. He sees coal as an “essential transitional fuel”, especially in Asia, where China and India account for two-thirds of global coal consumption.

Pit stop

Glencore is right to be realistic. No matter how worried coal may be around the world, many developing countries will favor cheap energy over clean energy if they are forced to choose. Glencore says he would produce coal if shareholders demanded it. But he clearly prefers not to. Only concerted government action to tax carbon emissions and rethink energy systems will kill king coal. â– 

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This article appeared in the Business section of the print edition under the headline “Glencore’s Message to the Planet”