GLENCORE will continue to deplete its coal reserves despite a change in the world’s attitude towards fuel, said group CEO Gary Nagle.
“We will not shy away from our plan to responsibly reduce our coal business,” he said during the presentation of interim results for the company in which coal took center stage. “We are committed to the world; it’s good for the world and we’ll keep it that way,” Nagle said.
Glencore said in 2020 it would cap coal production at 150 million tonnes a year and stop producing the fuel by 2050 when its coal reserves run out. He also unveiled carbon emissions targets as part of a climate change strategy that has roughly shareholder support.
Enough shareholders voted against Glencore’s climate change plan in April to trigger a consultation process, according to a Bloomberg News report in June. Some investors are asking for more details on how the plan will work as well as assurances that coal production will not pick up again.
“In an extreme event where all the governments of the world come together and say they’re putting a pause on climate change (policies) and we need to produce more coal, yes we (will produce more coal),” said Nagle.
“But that’s very unlikely. We are true to our world,” he said.
Coal was a massive contributor to Glencore for the six months to June. On an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) basis, Energy was $9.47 billion out of a total of R15.03 billion in EBITDA. Of the energy contribution, coal accounted for $8.9 billion versus a $5.88 billion contribution from all other minerals and metals.
There is no indication that coal prices will weaken as geopolitical conditions hold.
At the end of June, the price of exported South African coal (API4) was 182% higher than the December price. Similarly, the Newcastle coal price was 143% higher. “The energy markets seem to remain an issue,” Nagle said.
Coal demand was boosted by Russia’s invasion of Ukraine, which led to Russian sanctions and countermeasures, including shutting off gas supplies to Europe.
“We expect high energy prices for the rest of the year, but everything depends on the evolution of the crisis. We don’t see it going away for a while,” Nagle said.
Most of Glencore’s coal sales were open to the spot market. Assuming the current coal spot price, indicative coal EBITDA over a 12-month period will be $20.1 billion compared to $5.1 billion for copper, the second largest contributor to the 12-month EBITDA.