Glencore (OTC:GLCNF) has decided not to spin off its coal business. Following an acquisition of Teck's (NYSE:TECK) coal assets, most shareholders preferred maintaining the lucrative unit.
Glencore's initial plan to divest its coal business stemmed from environmental considerations. However, 95% of shareholders participating in the consultation advocated for retaining the coal and carbon steel materials business.
"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 creating value for Glencore shareholders today," stated Chairman Kalidas Madhavpeddi, as reported by Bloomberg.
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Shareholders pushed back against the proposed spinoff due to the coal unit's significant profitability, particularly in the current global energy landscape.
The coal business benefited from tight supply conditions and high global demand, as a lack of new investments created a favorable environment for existing players.
While coal prices subsided from an initial shock in 2022, they remained elevated compared to the long-term average.
This situation made the coal unit an integral part of Glencore's strategy, providing the cash flow needed to support other growth areas and return value to shareholders.
Interestingly, Glencore's decision aligns with the environmental, social, and governance (ESG) policies of major shareholders like BlackRock, which owns 7.32%.
These policies restrict ownership of pure-play coal companies. Thus, by retaining the coal unit within Glencore, these shareholders can maintain their investment while benefiting from its profitability.
Despite failing to acquire Teck in a $22.5b bid a year ago, Glencore acquired its coking coal assets, further bolstering its position in the coal market.
Teck's decision to divest from coal was part of a broader industry trend, but Glencore saw an opportunity to enhance its portfolio and sustain its profitability.
In the latest briefing, CEO Gary Nagle mentioned that the company would consider buying more steelmaking coal assets if the price is right.
Still, the first half of the year saw Glencore's earnings drop.
The company reported core first-half earnings of $6.34 billion, a 33% decline from the previous year. Its commodity trading business also experienced a sharp earnings decrease, with profits of $1.5 billion in the first half, as lower market volatility provided fewer opportunities for traders.
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