Glencore coal strategy backed by Barclay’s analysts
Earlier this week, an activist investor from Bluebell
Capital Partners, a London-based hedge fund, called on commodities group
Glencore to sell off its thermal coal assets, divest non-core assets, and
improve corporate governance.
Bluebell believes that Glencore’s operations are currently
unreasonably complex, with 90% of earnings generated by 14 out of the company’s
150 production assets. In turn, the fund urged the miner to “chart a new
future” without coal, advising a complete change in its coal strategy.
However, shareholders are unlikely to be perturbed by the
arguments made by Bluebell Capital. In a recent shareholder meeting, 94% voted
in favour of Glencore’s ambition to hit net-zero carbon dioxide emissions by
2050 by gradually running down its coal mines instead of spinning them off.
Glencore’s shares are up 56% this year, outperforming
competitors such as Rio Tinto due to soaring prices of its copper and coal
assets. Coal is predicted to generate $7.3bn of EBITDA this year, a third of
Glencore’s total.
The strategy has been backed by Barclay’s equity research
analysts in a recent note. The analysts see little value to unlock in the
current coal market environment and question whether a coal business of
Glencore’s scale could be successfully demerged. They contend that Glencore’s
current strategy has already addressed many of the concerns raised by the activist
investors.
“While the coal spinoff argument is not new, Glencore’s
strategy has clearly outlined that the favoured route is to reduce coal
exposure via depletion in a Paris-compliant pathway (50% reduction by 2035) and
growing its future-facing commodities,” the analysts stated.
Activist investor
Bluebell has argued that these claims are unfounded, and
that Glencore will benefit more fiscally without coal. Bluebell contended that
the company’s shares could rise by 40%-45% over the medium term if they follow
the activist’s recommendations.
Additionally, they posited that the current plan to run down
coal assets rather than close the mines is “morally unacceptable and
financially flawed”.
“A clear separation between carbonised and decarbonised
assets is needed to increase shareholder value,” the letter said.
In response, Glencore stated: “We are confident that our
business model is uniquely placed to produce, recycle, and market the materials
needed to decarbonise energy whilst reducing our emissions and delivering value
for stakeholders.”
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