Glencore votes against coal spin-off, remains open to more acquisitions

Glincore (OTC:GLCNF) has decided not to spin off its coal business. After the acquisition Teck (NYSE:TECK) coal assets, most shareholders preferred to keep the profitable unit.

Glencore’s initial plan to divest its coal business was driven by environmental considerations. However, 95% of shareholders responding to the consultation were in favour of 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 that retention offers the lowest risk path to creating value for existing Glencore shareholders,” the chairman said. Kalidas Madhavpeddi, as reported by Bloomberg.

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Shareholders opposed the proposed split due to the significant profitability of the coal unit, particularly in the context of the current global energy situation.

The coal industry benefited from tight supply and strong global demand, as a lack of new investment created a favourable environment for existing market players.

While coal prices have eased in 2022 following the initial shock, they remain high compared to their long-term average.

This position has made the coal unit an integral part of Glencore’s strategy, providing the cash flow needed to support other areas of growth and shareholder return.

Interestingly, Glencore’s decision is in line with the ESG (environmental, social and corporate governance) policies of major shareholders such as BlackRock, which holds 7.32%.

These rules restrict ownership by companies that are solely engaged in coal mining. In this way, by retaining the coal unit in Glencore, these shareholders can maintain their investment while benefiting from its profitability.

Despite failing to acquire Teck for $22.5 billion a year ago, Glencore did acquire coking coal mining assets, further strengthening 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 expand its portfolio and remain profitable.

In the latest briefing, the CEO Gary Nagle mentioned that the company would consider buying more coal assets for steel production if the price is right.

Despite this, Glencore’s revenue fell in the first half of the year.

The company reported first-half core profits of $6.34 billion, down 33% from a year earlier. Its commodities trading business also saw profits fall sharply, with a profit of $1.5 billion in the first half of the year as lower market volatility provided fewer opportunities for traders.

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This article Glencore Votes Against Coal Spin-Off, Remains Open to More Acquisitions originally appeared on Benzinga.com