In an unexpected turn of events, Glencore revoked its 2023 resolution to spin off its newly expanded coal business. The lure of continuing coal-related profits, the coking coal from the Elk Valley Resources acquisition, proved too strong for shareholders and management.
First, Glencore had planned to mix its existing coking coal and thermal coal mines (mainly in Australia) with Teck Resources’ acquired coking coal operations in Western Canada for $6. 93 billion. The plan was to create an independent coal company within 24 months of signing the agreement (around 2026).
Debt relief was first and foremost a key factor. Glencore has proposed reducing its debt from $10 billion to $5 billion to win over shareholders and banks that are wary of the company’s top debt levels.
However, shareholder consultations revealed a preference for maintaining the coal business’s money-making prospects. This, combined with confidence that coal, specifically coking coal, will remain an integral component of the global energy mix for some time, has led to a reversal of the trend.
“The expected money-generating capacity of the carbon coal and metal fabrics business particularly improves the quality of our portfolio,” President Kalidas Madhavpeddi said on Wednesday. “This expands our ability to fund copper expansion functions and increase shareholder returns. “
Glencore’s resolution comes despite a net loss of $233 million for the June half, compared with a profit of $4. 57 billion for the same period last year. The deficit missed analyst expectations for a profit of $1. 72 billion and included $1. 7 billion in significant items, adding $1 billion in impairment charges.
Glencore justifies its resolution by citing a lack of investment in new coal mines and confidence that scarce materials and high costs will persist. The company remains committed to a “responsible decline” in thermal coal operations and a slower transition from steelmaking coal.
“Glencore has considered the issue of the spin-off as a shareholder issue,” the company said. “Coal investments are sometimes a matter of investment preference. “
Glencore’s thermal coal output fell 7% to just under 51 million tonnes due to the closure of a mine in New South Wales and shipping disruptions in South Africa. Total 2024 production is now tentatively expected to be between 98 and 106 million tonnes, up to 107 million tonnes in 2023.
Change in debt relief plans
The original plan concerned post-split balance sheet management with a revised net debt ceiling of $5 billion. This replaced the existing limit of $10 billion. Glencore also reaffirmed its commitment to maintaining strong BBB/Baa ratings.
However, with the decision to retain the coal business, the debt ceiling returns to $10 billion (excluding commercialization-related lease obligations). The company highlights its continued commitment to the highest BBB/Baa ratings.
Even if most shareholders are now happy with the retained coal assets, the factor of high debt levels may simply resurface. The company recognizes this by reserving the right “to a spin-off of all or part of this business in the long term if things change. “
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