- Glencore has been the subject of three jurisdictional investigations by the US Department of Justice, the UK Serious Fraud Office, and the office of the Swiss Attorney General.
- Glencore has been for over 10 years in the cross-hairs of Global Witness, a non-governmental organization and lobby group established in 1993.
- Glencore Plc is an Anglo-Swiss multinational commodity trading and mining company with headquarters in Baar, Switzerland.
This hard-nosed mining and commodities giant will not easily relinquish itself of “dirty” assets in its portfolio in the name of decarbonization.
Coal miners make money
This fact is music to the ears of agnostic and dye in the wool capitalistic investors whose motives are purely to increase their capital and wealth in the process.
In an increasingly ESG conscious world where most if not all, businesses are making great efforts to reduce their carbon emissions and footprints, such crude and raw desire for money at all costs is proving to be more and more distasteful.
At the recently held COP26 governments and global businesses made concrete undertakings to reduce their emissions and one of the resounding resolutions that reverberated strongly during these deliberations was that coal and other fossil fuels need to go.
The resource, though plentiful and cheap, is responsible for most of the greenhouse gases emitted into the atmosphere and is consequently responsible for the adverse effects of climate change now being experienced. We have burned too much coal and now it and other fossil fuels are said to be responsible for the extreme weather patterns that characterize much of the world.
It is not fashionable to be a coal miner, explorer, producer of gas, crude oil and, related products. It is even less fashionable to be an investor in such ventures. Capital nowadays has a conscience. Investor funds are no longer just shying away from “dirty” investments. Their stance against them is becoming more and more explicit and pronounced.
Anglo American, the over 110-year-old mining and metals giant, spun off its coal assets into a separately listed company called Thungela Resources which it listed on the Johannesburg and London Stock Exchanges. This decision and subsequent move, the company felt, was consistent with its goal of becoming carbon neutral by 2050.
Anglo was not alone in taking this decision; other mining majors around the world have been divesting out of coal and other fossil fuels in concerted efforts to green their portfolios. Most notably, albeit a much smaller mining outfit is the case of South 32, this company which itself was born out of BHP Billiton’s sale of its South African assets sold out of its coal operations. They sold their collieries to a privately-held energy company called Seriti Resources.
This is the trend worldwide. If you are a large mining company with a global presence and you have large institutional investors as shareholders or financiers then you are most likely thinking of getting out of fossil fuels and decarbonizing your balance sheet so to speak. There is only one problem with this decarbonization strategy: coal and fossil fuels are lucrative investments. They make money. Lots of it.
This situation presents an interesting dilemma for investors in general and for certain companies like Glencore. Take the example of Thungela Resources; its share price and financial performance has been nothing short of astronomical. Rising coal prices, a clean balance sheet and astute cost management has given sails to the Anglo off-shoot. It is promising its shareholders bumper dividends this year and in years to come.
Then there is the case of Seriti Resources. As mentioned earlier the company is privately held so there is little information in the public domain about its financials. Suffice to say that one of Seriti’s main shareholders who is also the company’s CEO, mining veteran Mike Teke’s wealth is estimated to be in the region of at least ZAR682 million or US$43 million. Coal might pollute the atmosphere and cause harm to the environment, but it also prints money!
Even though most of the world’s leading governments have pledged to be carbon neutral by 2050 they are still heavily reliant on coal and they are spending a great deal of money to get their economies back on track from the effects of the Covid-19 pandemic. So fossil fuels will not be going anywhere, at least not in the near term.
Enter Glencore PLC
Investors considering placing their capital into this company need to be warned… Glencore is no stranger to controversy. It has been the subject of three jurisdictional investigations by the US Department of Justice, the UK Serious Fraud Office, and the office of the Swiss Attorney General.
The purpose of the investigations was to probe allegations of criminal misconduct, bribery, and its failure to have adequate measures to prevent corruption in the DRC as well as the company’s association with controversial Israeli billionaire businessman Dan Gertler. Glencore has been for over 10 years in the cross-hairs of Global Witness, a non-governmental organization and lobby group established in 1993 that works to break the links between natural resource exploitation, conflict, poverty, corruption, and human rights abuses worldwide.
The organization has offices in London and Washington, D.C.
Global Witness has also in that time blown the whistle on what it describes as suspicious transactions and dealings in the DRC involving Glencore’s operations and its association with sanctioned businessman Dan Gertler.
It has made numerous calls for the governments of leading countries to investigate Glencore and expressed satisfaction when announcements were made by these governments that investigations against Glencore had been instituted.
Perhaps even more embarrassingly, the company has also been investigated by the US commodities regulator, the Commodity Futures Trading Commission (CFTC), for possible corrupt practices. It would be very inaccurate to characterize Glencore as a saintly company. Bloomberg reported that one of its traders had paid bribes to African government officials during the normal course of business.
To its credit, however, the company has cooperated with all the authorities investigating its business activities. The company has had to pay fines to settle various charges against it.
Is there a case for investing in Glencore?
Who is Glencore anyway?
Glencore Plc is an Anglo-Swiss multinational commodity trading and mining company with headquarters in Baar, Switzerland, its oil and gas head office in London and its registered office in Saint Helier, Jersey. The current company was created through a merger of Glencore with Xstrata on 2 May 2013.
As of 2015, it ranked tenth in the Fortune Global 500 list of the world’s largest companies.
In the 2020 Forbes Global 2000, Glencore International was ranked as the 484th-largest public company in the world. As Glencore International, the company was already one of the world’s largest integrated producers and marketers of commodities. It was the largest company in Switzerland as well as the world’s largest commodities trading company, with a 2010 global market share of 60 per cent in internationally tradable zinc, 50 per cent in internationally tradable copper, 9 per cent in the internationally tradable grain market and 3 per cent in the internationally tradable oil market.
The years of aggressive growth and diversification have resulted in a massive mining conglomerate with numerous moving parts that no longer fit the overall vision of the company. The new chief executive, Gary Nagle who took over from Ivan Glasenberg, has embarked on what he calls a simplification strategy and has identified 10 assets that the company will dispose of soon.
“We have certain assets in our business that are sub-scale,” said Gary Nagle explaining the rationale for his company’s reorganization. The company came under heavy criticism when it took the decision to retain its coal and fossil assets. The most scathing of its criticism came from activist investor Bluebell Capital Markets which came short of calling Glencore “… not an investible company for investors who place sustainability at the heart of their investment process”.
Nagle prefers a scenario where the company runs down its operations as opposed to spinning them off such as what Anglo and South 32 did with their assets. Glencore says it will produce 15 per cent less coal by 2026 and 50 per cent by 2035. This, the chief executive said, was set in stone. Who can blame Glencore for not wanting to kill their proverbial golden goose?
The company forecast EBITDA in 2022 to come in at US$21.7 billion and coal’s contribution to that figure. Coal is expected to account for US$6.3 billion coming second only to copper which is expected to deliver US$7.9 billion to the bottom line.
How does Glencore stack up against its peers as an investment?
Among the top five largest diversified mining companies in the world, Glencore is an outlier. The company’s shares have gained 60 per cent in the period of one year. This share price performance among the five largest mining concerns in the world is followed by China Shenhua Energy and Anglo American at 23.97 per cent and 22.90 per cent respectively.
What has given Glencore shares the steam that is powering their seemingly unending rise?
For starters, the company reinstated its dividend payments in February of this year after turning off the dividend taps in 2020 on account of the COVID-19 pandemic. The company brought back dividends very strongly by announcing a US$1.6 billion dividend after attaining a free cash flow of US$7.2 billion in January 2021. It did not stop there.
In August Glencore announced a special dividend of US$500 million and a share buyback of US$650 million. This brought the total payout to shareholders for 2021 to US$2.8 billion. The good times are not expected to stop any time soon.
At its capital markets day held in December 2021, the company said that it expects earnings from its marketing division would come in at the higher end of the range between US$2.2 billion and US$3.2 billion. The company also expects that free cash flow for the financial year 2021 to come in at between US$11 billion and US$13 billion.
How does the investment community rate Glencore PLC?
Profile Media has this rating for Glencore in terms of its consensus view on the company:
What can you expect from a company with a market capitalization of 49 billion pounds!