Glencore Listens to Investors, Keeps Coal Assets

Glencore (LSE:GLEN,OTC Pink:GLCNF) said in its half-year report, released last Wednesday (August 7), that it will retain its coal and carbon steel materials business, reversing plans for a spinoff.

The decision comes after consultations with an estimated two-thirds of eligible voting shareholders. According to Glencore, 95 percent of them voted in favor of retaining the business.

"Some shareholders stated that this was a decision for the Board alone to make, but of the others, the overwhelming majority had a clear preference for retention," Glencore states in the report.

"This was primarily on the basis that retention should enhance Glencore’s cash-generating capacity to fund opportunities in our transition metals portfolio, such as our copper growth project pipeline, as well as accelerate and optimise the return of excess cash flows to shareholders," the company further explains.

Glencore's US$6.93 billion acquisition of a 77 percent stake in Elk Valley Resources, Teck Resources' (TSX:TECK.A,TSX:TECK.B,NYSE:TECK) steelmaking coal unit, got the green light from the Canadian government on July 4 and the deal closed on July 11. Strict conditions were put in place to preserve Canadian jobs.

Japan's Nippon Steel (TSE:5401) holds a 20 percent stake in Elk Valley, while South Korea’s POSCO Holdings (NYSE:PKX,KRX:005490) has a 3 percent share in the operation, which is located in BC, Canada.

Glencore previously spoke about spinning off its coal assets into a New York-listed entity after the Teck purchase, but in March of this year Reuters reported that a growing number of shareholders wanted Glencore to keep its coal position.

“The ESG pendulum has swung back over the last nine to 12 months,” the Financial Times quotes CEO Gary Nagle as saying about Glencore's shift on coal. “They (shareholders) recognise that cash is king.”

Glencore Chair Kalidas Madhavpeddi further commented, "The expected cash generative capacity of the coal and carbon steel materials business significantly enhances the quality of our portfolio, by commodity and geography, and broadens our ability to fund our strong portfolio of copper growth options as well as accelerate shareholder returns."

The company does note that while it has made the decision to retain its coal business, its board preserves the option to consider a demerger of all or part of this segment in the future, depending on the circumstances.

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Securities Disclosure: I, Gabrielle de la Cruz, hold no direct investment interest in any company mentioned in this article.