Glencore (LON: GLEN) scrapped on Wednesday plans to separate its coal division, which it had announced following its acquisition of assets from Teck Resources last year (TSX: TECK.A, TECK.B)(NYSE: TECK), as shareholders opposed the move.

The Swiss miner and commodities trader said in November it would merge Teck’s steelmaking coal business with its own coal assets, after which it would demerge the combined unit. 

Shareholders representing nearly two-thirds of eligible voting shares were consulted, Glencore said. Over 95% of those who expressed a preference supported retaining the coal and carbon steel materials business, primarily because they believe it would enhance the firm’s cash generating capacity.

Over 95% of shareholders consulted over the past month were in favour of keeping the coal unit to help fund growth in metals and support returns.

Glencore’s backpedaling on its coal exit did not come as a surprise to analysts, as investors had been pushing for the company to keep mining the fossil fuel for longer. The Baar, Switzerland-based firm is one of the largest producers and exporters of thermal coal, with an expected output of between 98 million and 106 million tonnes this year.

“Investors appreciate the strong cash flow from coal, particularly if it is channelled to capital returns/buybacks,” Bank of America analysts said in a July note.

The decision highlights the dilemma fossil fuel companies and their shareholders are caught in. They are under pressure to reduce emissions, but doing so would mean giving up on the substantial profits they are still generating.

Glencore had previously said it planned to run down its thermal coal mines by the mid-2040s, closing at least 12 by 2035.

In its 2024-2026 Climate Action Transition Plan (CATP), Glencore noted it was still “on track” to meet its 15% reduction of carbon dioxide equivalent emissions for its industrial assets from 2019 levels by the end of 2026, and of 50% by the end of 2035.

Built on coal

Glencore’s business has long been centred around coal, and the prospect of abandoning it seemed improbable for a company built on the commodity. Ivan Glasenberg, Glencore’s CEO for two decades, was a former coal trader who frequently highlighted the unquenchable demand from Asia, even as the West sought to distance itself from coal.

“A decision against a coal demerger is a good decision,”  Sebastian Rötters, energy and coal campaigns coordinator at German NGO Urgewald said in an emailed statement. “Glencore should keep its coal mines and wind them down in line with the [International Energy Agency – IEA] Net Zero scenario, providing just transition for coal workers and affected communities. This includes of course no more coal mine expansions and no new mines,” Rötters said.

Simon Nicholas from the Institute for Energy Economics and Financial Analysis (IEEFA agrees. He believes that a coal spin off would have meant for Glencore to lose control over its Scope 3 emissions — those generated from assets not owned or controlled by a company.

“Previous divestments of coal assets by diversified miners have put control in the hands of pure-play coal miners that have optimistically bullish outlooks with plans to increase production,” Nicholas wrote in May.

Other market actors were dissatisfied with the decision. “Glencore’s investors only seek to maximize their profits, wanting to keep all coal assets under one roof,”uan Pablo Gutiérrez, ONIC/Yukpa, Colombian social leader said in an emailed statement. 

“However, for the indigenous communities affected by its coal mines, such as the Yukpa and Wayúu [in Colombia], the real solution is for Glencore to close its mines and immediately assume its social and environmental responsibilities.” Gutiérrez, noted.

Glencore committed on Wednesday “to continue to oversee the responsible decline of its thermal coal operations over time.” But chief executive Gary Nagle said on a conference call to discuss first-half financial results, published alongside the coal decision, that the company may consider buying more steelmaking coal assets at right price, good quality and in the right location.

Source: MINING.COM – Read More