Glencore, the colossal mining entity, was determined to pursue Teck’s coal operations, with refusal not part of the equation. Nevertheless, City AM’s energy editor Rhodri Morgan has an impression of how an acquisition would shape in the pursuit of a more environmentally friendly future.Thank you for reading this post, don't forget to subscribe!
In spite and because of its remarkable profits in recent years, the trading and mining behemoth Glencore is arguably the most keen to confront the imperative for a transition to sustainable energy. It stands as the dominant force in commodity capitalism.
Recognizing the contradiction in its operations, Glencore, which amassed $255.98 billion from coal in fiscal 2012, acknowledges the growing demand for coal alongside the necessity for net zero goals to advance.
Glencore’s trademark blockbuster activity was showcased again as the company successfully concluded the protracted pursuit of Canadian miner, Teck Resources, last week. The deal results in Glencore securing 77% of Teck’s coking coal operations for $6.9 billion in cash, with Nippon Steel Corp and POSCO Holdings obtaining the remaining 33%.
How does the company’s approach of managing a reduction in coal assets harmonize with the aspiration for a more environmentally friendly future within this context?
How was the agreement reached?
Both sides have a clear business rationale; Glencore gains control of a major mining player while Teck reduces debt and strategically reinvests. When discussions commenced in 2020 and swiftly folded, Teck did not view it as mutually beneficial.
Subsequent talks in 2022 culminated in a $23 billion offer from Glencore, a 20% premium at the time, which Teck’s CEO, Jonathan Price, deemed a “non-starter” and subsequently declined. Instead, Price proposed dividing Teck into two independent entities focusing separately on coal and base metals.
This situation did not sit well with Glencore. As it was finalizing a deal to acquire a tremendous thermal coal mine in Colombia, the global coal industry was booming in 2022, contributing over half of Glencore’s FY22 profits. Similar to other major commodity operators during the peak of the pandemic, Glencore was not prepared to accept ‘no’ as an answer.
If unable to convince the owner to part with the pig, Glencore will strive to acquire the farm. However, Teck’s primary concern was opening its shareholders to thermal coal and oil trading through the establishment of two distinct entities following the sale outlined in Glencore’s proposal.
Glencore successfully resolved this issue by making a renewed bid for Teck’s coal business in June, culminating in a deal last week. It turns out the pig was indeed available for sale.
Prior to the finalization of the agreement, it seemed that Glencore’s aggressive pursuit of Teck had encountered strategic gaps. Teck abandoned its initial plans to spin off its coal business, which Glencore is now poised to acquire internally. Moreover, the expenses related to steel-making coal exceed those of its thermal equivalent.
While these developments were well-received by shareholders two decades ago, there is escalating apprehension about the actual contribution of this activity to global temperature reduction.
Glencore once again has the solutions. The current plan involves separating the combined coal unit into an independent entity and listing it on the NYSE, enabling the London-listed Glencore to concentrate on its already extensive holdings in copper, cobalt, lithium, and zinc.
There is also a question for policymakers in London. Glencore opted for a listing in London due to its standing in the mining industry. However, if it is now contemplating the launch of its own offshoot – especially a coal-related one – we must question whether this indicates a decline in London’s attractiveness for commodity IPOs.
Once the Teck deal and subsequent spin-off are finalized next year, the two companies will differ significantly in size and scope. Crucially, all attention will be on Glencore’s ‘green’ strategy. Yet, it appears that both the company and its investors can manage this issue for the immediate future.