Glencore Drops Coal-Spinoff Plan; Swings to Surprise Loss — Update

By Christian Moess Laursen

Glencore scrapped plans to spin off its coal unit following its $6.93-billion acquisition of Elk Valley Resources, and unexpectedly reported a swing to a net loss for the first half due to lower coal prices and impairments.

The world's largest mining company by revenue said Wednesday that the highly cash-generative business will support investments in growing its copper portfolio and help boost shareholder returns.

A clear majority of shareholders rejected the proposal to create a standalone coal business following the purchase of Elk Valley from Canadian miner Teck Resources last month, Glencore said.

"Following extensive consultation with our shareholders, whose views were very clear, and our own analysis, the board believes retention offers the lowest risk pathway to create value for Glencore shareholders today," Chair Kalidas Madhavpeddi said.

Speculation had been mounting that the Switzerland-based company would keep the unit amid improved investor sentiment around coal and given the potential of keeping a highly cash-generative business in its fold.

Despite global efforts to curb carbon emissions, demand for coal is set to remain near record highs.

According to the International Energy Agency, demand rose by 2.6% last year to an all-time high of 8.70 billion metric tons, driven by strong growth in China and India, the world's largest coal consumers. This year, demand is forecast to remain largely stable at around 8.74 billion tons, the Paris-based agency said.

Glencore originally acquired the steelmaking-coal unit with a view to combine it with its carbon steel-material division as a standalone business. The deal was announced in November and cleared last month by the Canadian government.

Last week, as a result of the acquisition, Glencore lifted its coal-production guidance for the year to between 19 million and 21 million tons, from between 7 million to 9 million tons previously.

For the first half of the year, the commodity mining and trading giant swung to a net loss of $233 million from a $4.57 billion profit in the same period last year, missing analysts' expectations of a $1.72 billion profit, according to a Visible Alpha-polled consensus. Revenue rose 9% to $117.09 billion.

The swing to loss was mainly driven by lower coal prices as well as impairments related to Glencore's South African coal operations and its Koniambo nickel business in New Caledonia. Earlier this year, the miner said it would place its Koniambo operation on care-and-maintenance amid a persistently challenging market environment.

Its adjusted earnings before interest, taxes, depreciation and amortization--a closely-watched metric--dropped to 33% to $6.34 billion, below a consensus forecast of $6.81 billion, as earnings from its coal assets dropped 60% on weaker prices. Glencore makes most of its earnings from coal and copper.

Glencore reaffirmed the full-year production targets it set earlier this month.

Write to Christian Moess Laursen at christian.moess@wsj.com

(END) Dow Jones Newswires

August 07, 2024 03:42 ET (07:42 GMT)

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