Glencore Offers $9.6bn To Buy Teck’s Coking Coal Unit, Elk Valley
Glencore, the Swiss mining and trading giant, has offered Teck Resources of Canada a $9.6bn cash acquisition of its coking coal unit, Elk Valley. The move comes as Glencore continues to expand its coal division while also promising to divest from it by 2023. However, with coal still generating nearly half of Glencore’s EBITDA (earnings before interest, taxes, depreciation, and amortization), investors who are concerned about climate change may be hesitant. Currently, around 30% of investors have voted against Glencore’s climate change goals, which increased by 6% than in 2022. To compensate, Nagle, the new boss of Glencore, has promised to split off Glencore’s coal business within two years, far earlier than planned. Teck’s willful president emeritus Norman Keevil has reportedly declined Glencore’s initial bid and remains receptive to other offers from potential rival bidders like Pierre Lasounde.
Why Glencore Needs A Deal
The pressure for Glencore to make a deal is increasing with each passing year. Despite scrutiny from investors and international climate committees, the various reports showed that the company’s coal business generates nearly half of its EBITDA, which is why Glencore’s move into coking coal may cause even more alarm. With its EBITDA expected to grow by 50%, Glencore’s coal division continues to expand despite new corporate policies to exit within two years. This expansion may be due to the need for cash flow. However, coal is not only dirty but also a drag on the valuation of diversified miners. Stakeholders have rejected Teck’s independent restructuring plan as coal would continue to fund its copper and zinc divisions. As such, splitting off Glencore Coal will leave the core metals business with a 6-7 times valuation of EBITDA, well above the estimated 4 times for the whole group.
How Glencore Can Affect the Planet’s Health
Glencore’s expanding coal division, coupled with its recent promise to divest it from the group within two years, presents some conflicting messages. The Swiss-based commodities trader’s ongoing behavioral attitude of prioritizing investments over the environment highlights the threat to sustainable development and green economy. Glencore’s actions pose considerable risks to meet the Paris climate agreement’s targets of limiting the average global temperature rise to below 2C. The move to expand its use of coking coal seems particularly alarming, given that the international community engages in the wave of ‘net-zero’ emissions and the push towards renewable energy. The continued exploitation of fossil fuels comes at a cost. It threatens the human environment, causes damage to land and water systems, and contributes to the loss of biodiversity. While the company recognizes the need for divestment from its coal business within the next two years, significant concerns remain, given Glencore’s role in the global climate crisis.
The Role of Investors
For investors, the proposition of such a significant investment has its pros and cons. On one side, the cash flow from Glencore’s coking coal unit’s acquisition could result in substantial financial gain. On the other side, the use and exploitation of fossil fuels continue to generate negative externalities. Investors are increasingly applying pressure on Glencore to focus on renewable and cleaner energy sources that align with investor and societal interests. With 30% of votes at this year’s annual meeting opposing Glencore’s climate change goals, this may be the start of increased shareholder engagement and pressure, which could influence the company’s decisions and impact society positively.
Summary
Glencore, in its bid to expand its coal division, has offered Teck Resources a $9.6bn cash acquisition of its coking coal unit, Elk Valley. However, given that coal generates nearly half of the firm’s EBITDA, investor concerns regarding climate change and corporate sustainability have become more pronounced. In response, the Glencore boss has pledged to spin off all of Glencore’s coal business within two years. Reports suggest that stakeholders have rejected Teck’s independent restructuring plan as the sale of coal would fund their copper and zinc divisions. However, the split of Glencore’s coal business will leave its core metals business with a higher EBITDA valuation representing the entirety of the group. Investors are increasingly applying pressure on Glencore to focus on renewable and cleaner energy sources that align with investor and societal interests.
Additional Piece
As the world establishes and enforces new climate goals, commodity traders like Glencore must adapt and respond responsibly to an environmentally friendly opportunity. The Swiss giant’s latest move to expand its coal division and then divest it within two years is a reflection of the company’s growing concerns regarding climate change, carbon emissions, and sustainable growth in its performance and behavior. However, there are major issues with expanding coal use, particularly as the world moves toward renewable energy. Although this acquisition may generate short-term cash, such a move is unfriendly to the global climate crisis’s recurring and long-term interests and could be a costly mistake.
Teck’s Elder President, Norman Keevil, has already declined Glencore’s initial bid, stating that it’s taking its time to accept a favorable offer from a potential rival bidder. With such significant investments and acquisitions, investors may feel uneasy as they consider the impact of fossil fuels on the environment, shareholders, and the cost of postponing a sustainable green economy. However, pressure is building on Glencore to adopt cleaner and greener energy sources as 30% of votes at this year’s annual meeting opposed the company’s climate goals. A change is coming, and investors must reconsider the long-term costs of every move in relation to the planet’s health.
As stakeholders raise concerns and push for climate-responsible investment, Glencore’s misaligned priorities, not only affecting the green economy but also raising ethical and social concerns as well, exemplify the need to leave remaining coal reserves in the ground and move towards more sustainable sources of power. Governments, international institutions, and businesses must genuinely collaborate to meet global climate goals, but an eco-friendly shift must start within each firm. Transparent communication, responsible leadership, and corporate sustainability can mitigate the inherent perils of traditional harmful behaviors.
Summary
As Glencore expands its coal division by offering to acquire Teck Resources’ coking coal unit, Elk Valley, investors are concerned about the long-term impact that fossil fuel and carbon emissions could have on the environment and the cost of this to shareholders. The decision to split Glencore’s coal business within two years seeks to address these concerns, but subsequent expansion in this area does not necessarily reflect Glencore’s move towards sustainable practices. With the pressure piling on Glencore to get rid of fossil fuel investments and adopt cleaner energy sources, the company’s move into coking coal raises ethical and social concerns. The company must reconsider its continued exploitation of fossil fuels and instead embrace more sustainable practices, leaving the world a cleaner, safer, and brighter place.
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The planet is safe in my hands: I am a commodities trader based in Switzerland. This would appear to be the message from Glencore boss Gary Nagle. His plan to expand the polluting coal division that he has promised to divest only adds to the cognitive dissonance.
For months, Glencore has been trying to pressure Teck Resources of Canada into accepting an acquisition. On Monday, the Swiss mining and trading giant proposed an alternative: a cash acquisition of Teck’s coking coal unit, Elk Valley. This would expand Glencore’s coal ebitda by about half. It would be the group’s second purchase of coal assets in two years.
This news may not sit well with all shareholders. Witness investor squirm with Nagle over Glencoreclimate change goals. About 30 percent of votes at the annual meeting this year were against, 6 percentage points higher than in 2022. That’s a substantially negative minority report.
That may explain why Nagle is promising to spin off all of Glencore’s coal business within two years, much sooner than expected. Coal still generates about half of Glencore’s EBITDA. The addition of Teck charcoal increases that dominance. The paraphrase of the Saint Augustine group is: “Do me good, Lord, but not before 2025”.
Investors will appreciate the temporary increase in cash flow. But coal remains a drag on the valuation of diversified miners. Shareholders said no to Teck’s independent restructuring plan because the black stuff would fund the copper and zinc divisions.
The split of Glencore Coal would leave the core metals business with a valuation of around 6-7 times EBITDA, UBS thinks. This is well above the estimated four times for the entire group.
In February, Nippon Steel agreed to buy one-tenth of Teck’s coal unit, valuing the business at $8.2 billion, Glencore had given the same value, while Teck’s equity opinion valued the EVR up to $9 billion, about three times the projected 2024 ebitda.
Teck’s willful president emeritus Norman Keevil can no doubt wait patiently for suitors. Mining investor Pierre Lassonde is among the potential rival bidders
Keevil rebuffed Glencore when he attempted to put public pressure on him earlier this year. The alternative offer for the Elk alone could be wrecked in the same way. What it does indicate is the growing desperation within Glencore to make a deal. Investors and activists can now expect the company to exit coal in two years, whatever Teck’s outcome.
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https://www.ft.com/content/8d9f42b6-6cd5-4c2a-86d7-cabe5bfe9e24
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