Glencore to buy out partners in Colombian coal mine

Glencore is buying out its partners’ interests in one of the world’s biggest open-pit thermal coal mines, the latest deal in an industry being reshaped by pressure from banks and investors.

Under the deal, the London-listed miner and commodity trader has agreed to acquire the 66.6 per cent of Cerrejón in Colombia it does not already own from Anglo American and BHP for $294m each in cash. Glencore expects to recoup its investment less than two years after the acquisition is completed.

The agreement marked the latest change of ownership in the thermal coal industry, and came as the price of the fossil fuel has hit its highest level in a decade on strong demand from Asia and a lack of investment in new supply.

Glencore also said on Monday that it was aiming to cut its total emissions 50 per cent by 2035 on 2019 levels, up from a previous goal of 40 per cent, and was targeting a 15 per cent reduction by 2026, which have been restated to reflect full ownership of Cerrejón.

Big miners are coming under increasing pressure from investors and banks to divest their coal mines and align their businesses with the goals of the Paris climate agreement. Thermal coal is burnt in power stations to generate electricity, a process that is responsible for about 30 per cent of global carbon dioxide emissions.

Anglo American has demerged its South African coal assets into a company listed in Johannesburg and London. The Cerrejón deal will complete its exit from coal. BHP is examining offers for its Australian thermal coal business.

However, Glencore’s long-serving chief executive Ivan Glasenberg has dismissed coal divestment as pointless, saying there were no environmental benefits from investors pressing miners to sell or spin-off coal mines. 

He has argued that the company, the world’s biggest exporter of thermal coal, was better off running down its mines and using them as a source of cash to expand production of raw materials such as nickel, copper and cobalt that will be needed as the world shifts to cleaner forms of energy. 

As such, Glencore decided to buy out the interests of Anglo and BHP when they served notice of their intention to divest this year. By the time the deal closes in the second half of next year, cash generated in the interim could reduce the purchase price to $230m, according to Glencore.

“Disposing of fossil fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions,” said Glasenberg. “We are confident we can manage the decline of our fossil fuel portfolio in a responsible manner that is also consistent with meeting the goals of the Paris Agreement, as demonstrated by our strengthened total emission reduction targets.”

The deal effectively replaces the tonnage lost when Glencore decided to mothball production at Prodeco, another Colombian coal mine.

Glencore pledged in 2019 to cap coal production at about 150m tonnes a year in the face of pressure from big investors. Further expansion of the coal business was largely ruled out, although Glencore said it would buy out joint venture partners where it had the first right of refusal on their stakes. 

The Cerrejón deal will see Glencore’s thermal coal production rise to around 125m tonnes this year, from earlier guidance of 110m.

Glencore plans to meet its emissions reduction targets by depleting its coal assets over time and moving to renewable energy and clean fuels at its mines.

The acquisition also comes as Glasenberg prepares to stand down at the end of the month. He is being succeeded by Gary Nagle, the former head of Glencore’s coal business.

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