Glencore’s coal spin-off at the centre of 2024 AGM
While Glencore's planned coal spin-off was received with caution by investors, the firm's CEO used the AGM to promise shareholders a binding vote on the decision
Shareholders at this year’s Glencore AGM in Zug voted by a significant majority of 90% to back the company’s climate transition plan. However, the number of investors abstaining on the energy transition tripled compared to the previous year.
Contributions at the firm’s AGM revealed that the company is facing some challenging strategic decisions.
Zug-headquartered global mining giant Glencore, one of the world’s largest coal producers, is under pressure to bring down its carbon footprint. However, at this year’s AGM, many shareholders stressed that they would like this to be done responsibly.
Teck acquisition
The firm’s carbon footprint is on track to increase significantly because of the acquisition of Teck’s steelmaking coal business, a $6.93bn deal completed at the end of last year. The deal will see Glencore take on a 77% stake in Teck’s steelmaking coal business in the Elk Valley of British Columbia. The deal is expected to close in Q3 2024.
The transaction highlights the complexity of pursuing a net-zero approach for companies that deliver the materials for the energy transition. Glencore’s Energy Transition plan, which received significant investor backing, merely pledges to “responsibly phase down” its thermal coal business.
Speaking at the AGM, Nagle said that the firm will no longer spend money on greenfield projects and will halve its coal emissions by 2035 to meet its net-zero by 2050 ambition. However, the firm has so far stayed clear of setting a hard net-zero target.
Nagle emphasised that while the transaction was not yet completed, the decision on whether to spin off the coal businesses would be subjected to a binding shareholder vote.
Drawing the distinction between thermal coal, which is being widely phased out by institutional investors, and coking coal, which is most commonly used for steel production, Nagle argued that a degree of coal exposure was necessary to facilitate the energy transition.
“The key with our coal portfolio is our commitment to run it down responsibly. Fossil fuels do not have a long-term future, but they are required in the short and medium term as the world transitions away from a carbon-intensive world to a decarbonised world,” he stressed.
However, his stance was challenged by Sarah Brewin, company strategist at the Australasian Centre for Corporate Responsibility (ACCR), who questioned how the increase in coal capex aligned with responsibly winding down the coal business.
Coal spin-off contested
Paradoxically, many institutional investors are wary of the spin-off. While they would like to see a reduction of Glencore’s carbon footprint, they are worried that merely selling on the assets would result in the new owners abandoning Glencore’s net-zero ambition.
A recent briefing note by the Institute for Energy Economics and Financial Analysis found that similar coal spin-offs by diversified miners have resulted in the divested entities being controlled by pure-play coal miners with optimistically bullish expectations for coal, with plans to increase production, according to Simon Nicholas, IEEFA’s lead steel analyst and the author of the briefing note.
He challenged Nagle’s optimism on thermal coal somewhat, emphasising that Glencore’s proposed spin-off would predominantly consist of thermal coal. “Various sources show that the thermal coal market has entered permanent decline. Indeed, the long-term outlook for metallurgical coal is also one of decline,” Nicholas stressed.
Naomi Hogan, company strategy lead at ACCR, welcomed the fact that Glencore was giving shareholders a choice but warned that openness about transition risks and the impact on its carbon footprint was key: “Glencore says it is now going to consult with shareholders on the demerger. Given the rapidly diminishing global carbon budget, a responsible wind down of coal production is a better way to manage emissions than divestment of coal assets.
“Were the demerger to go ahead, one potential safeguard against poor climate outcomes could be for Glencore to put in place spin-out conditions that enforce strong Paris-aligned climate commitments. However, given the scale of emissions involved, these conditions would need to be stringent, transparent and led from board level,” she suggested.
Critical Minerals
Besides navigating the controversial phaseout of coal, Nagle was above all keen to present Glencore as a leading miner for the critical minerals that will form the backbone of the energy transition.
He stressed that throughout a normal market cycle, steam coal accounted for less than 10% of the firm’s annual turnover. However, the group’s 2023 annual results show an EBITDA of $17.1bn, the mining giant reported a drop in profits due to the stark fall in commodity prices in 2023.
Going forward, Glencore aims to reinforce its position in critical minerals such as copper, zinc, and battery-grade nickel. “Copper is the backbone of decarbonisation,” Nagle stressed.
