The great white shark of the mining industry is swimming into retirement.
Ivan Glasenberg announced last week that he will leave Glencore (GLNCY) by mid-2021 after spending 18 years running a company that combined the biggest commodities trader with one of the biggest mining operations. Along the way, the South African billionaire became famous, and infamous, for his high-risk manoeuvres, straight-talking style and sheer aggression.
The first half of Mr. Glasenberg’s reign, when he rode the China-driven commodities boom for everything it was worth, making fortunes along the way, had greater success than the last half. His biggest mistake was taking a pass on iron ore, the commodity whose prices have defied gravity and propelled Glencore’s rivals – Rio Tinto and BHP among them – to new heights. Supply constraints have helped to more than double iron ore prices to US$150 a tonne in the past two years alone
Nor did landing in the gun sights of the U.S. Department of Justice endear Glencore to investors. Justice is investigating the company for possible money laundering and corruption in the Democratic Republic of the Congo and other developing countries. Similar probes are under way in Britain and Switzerland.
Glencore had a lousy run in recent years. The company joined the London stock market in 2011 in a blockbuster initial public offering at 530 pence a share, and took full control of Xstrata, owner of Canadian nickel miner Falconbridge, a year later. On Friday, Glencore was trading at 238 pence, valuing the company at the equivalent of US$42-billion. The shares have been on a roll since the start of November, driven by surging copper prices. Still, Glencore has been outshone by its rivals, and the overall post-IPO return is deep in negative territory.
But better times may lie ahead for both Glencore and Mr. Glasenberg, who is 63 and owns 9 per cent of the company. That’s because Glencore could emerge as an unlikely sweetheart among those looking for climate-friendly investments.
How could that be possible? Glencore is one of the biggest producers of coal, and Mr. Glasenberg and his successor, Gary Nagle, the fellow South African who is head of the company’s coal business, built their careers on deploying armadas of ships laden with the dirtiest fossil fuel.
It would be a stretch to say Glencore is embarking on a black-to-green transformation that will fundamentally change its business model – it would never become a renewable energy company. It is not a stretch to say its climate goals are more ambitious than those of its big-name rivals.
Glencore has vowed to reduce its greenhouse gas emissions by 40 per cent by 2035 over 2019′s level, and to net-zero by 2050. The goals refer to total emissions – direct and indirect – including those of the Scope 3 variety; no other big mining company has such ambitious targets. Scope 3 emissions are those linked to the company’s value chain. For instance, a tonne of Glencore coal burned by an electricity utility is counted among Glencore’s Scope 3 emissions.
Glencore has pretty simple plan to reach net-zero: It will not replace the coal it digs out of the ground. By 2050, perhaps sooner, the coal reserves – and production – will be gone.
The other part of the net-zero plan is to concentrate on the metals that power the green economy – copper, cobalt, nickel, zinc and aluminum, all of which Glencore produces in abundance. These metals are essential components of electric vehicles and their batteries, solar panels, wind turbines and electrical grids.
Glencore’s green strategy is clever. In essence, it’s an effort to make up for the lost years, when investors shifted their attention to the lucky iron ore players. Glencore’s hope is that its net-zero emissions goals, along with a portfolio brimming with metals essential for clean-energy applications, will give it a competitive advantage with the pension funds and other investors that have embraced ESG (environmental, social and governance) principles – the factors that measure sustainability. Most have.
Glencore may be right. Other resource companies will have to do the same to prevent ESG investors from fleeing. BHP, for instance, has spun off a big chunk of its mining and metals business, including the coal operations, into a separate company called South32. Coal-heavy companies like Canada’s Teck Resources face a strategic rethink.
Mr. Glasenberg has done the groundwork for Glencore’s coal-free future. But hat doesn’t mean Mr. Nagle will have an easy ride. While it seems unlikely he will take Glencore in a completely new direction, he will have to decide soon whether to bring the net-zero target date forward by spinning off the coal division. Doing so would be a good idea, all the more so since coal’s relevance to Glencore, while big, is shrinking. Only 10 per cent to 15 per cent of its operating earnings now come from coal. Those profits would be missed, but investors’ affection for the company would rise.
Mr. Glasenberg would be a lot happier if he could leave Glencore with a share price north of its IPO price. That won’t happen. His consolation prize is that he is ahead of the pack in positioning the company to appeal to ESG investors. Glencore shareholders may yet get the rewards that eluded them for years.
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