Glencore may be the next UK listing to head west
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Updates to add graphic.
By Karen Kwok
LONDON, Aug 7 (Reuters Breakingviews) -Gary Nagle is flipping the script. The boss of $61 billion Swiss miner Glencore GLEN.L on Wednesday said he would drop a proposal to spin off his coal business via a New York initial public offering. Even so, he may yet opt to re-list the whole business there instead.
Glencore’s initial idea to spin off its coal business after acquiring 77% of Canadian rival Teck Resources’ TECKb.TO steelmaking coal unit in July made sense. It would have turned the group into one focused on green transition metals like copper, which trade at a higher valuation multiple than other miners with a more diversified commodity mix. And it would have reduced the heat from sustainability-focused European investors: UK asset manager LGIM said in June some of its funds would sell their Glencore stakes due to Nagle’s commitment to winding down its coal mines.
Still, RBC estimates the combined coal businesses could generate 34% of the EBITDA Glencore will churn out in 2024, or $6 billion. That’s more than the $4.7 billion the analyst assumes for Glencore’s copper business this year. Nagle can use the cash to invest in copper mines, and has long argued that gradually winding down coal mines is more responsible than selling them to an owner who might ramp them up.
The catch is that a coaled-up Glencore remaining in London may maintain its valuation discount. The group is trading at 3.9 times the EBITDA analysts expect it to generate in 2024, using data polled by Visible Alpha. Rivals Rio Tinto RIO.AX, BHP BHP.AX and Anglo American AAL.L, which have a bigger exposure in other commodities such as iron ore, trade on average at 5 times. Nagle could buy back the cheaper Glencore shares to narrow the gap. But another way would be to move the whole company to New York.
Plenty of UK-listed companies have looked at such a move, tempted by the U.S. market’s typically higher valuations. Those hopes are not always supported by the facts: pure-copper play Antofagasta ANTO.L is London-listed and trades at a premium to other diversified miners due to its exposure to the red metal. Glencore’s past run-ins with the U.S. Department of Justice would also sit oddly alongside a U.S. love-in. Nagle said on Wednesday he was “comfortable” maintaining a London listing.
Still, a coal-heavy European company has a good reason to hope for a higher New York valuation. American pension funds tend to be more sanguine about fossil fuels: as of May, U.S. investors poured over $770 billion in bonds and shares issued by coal companies, relative to $118 billion invested by European investors, according to data provided by Urgewald. If Glencore’s coal arm was valued on 4.7 times its expected 2024 EBITDA, as U.S. coal rivals Alpha Metallurgical Resources AMR.N, Arch Resources ARCH.N, Consol Energy CEIX.N and Warrior Met Coal HCC.N are, that division alone could be worth $28 billion, nearly half of the Swiss miner’s overall enterprise value. It would be surprising if Nagle hasn’t noticed.
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CONTEXT NEWS
Glencore will not spin off its coal business after securing backing from the majority of its investors who see lucrative earnings from the fossil fuel after the commodities giant’s recent acquisition of Teck Resources’ coking coal assets, the company said on Aug. 7.
“Following extensive consultation with our shareholders, whose views were very clear, and our own analysis, the board believes retention offers the lowest risk pathway to create value for Glencore shareholders today,” said Chairman Kalidas Madhavpeddi.
Glencore is “comfortable” maintaining a primary listing in London but would consider other options if there were fundamental changes and a reason to move to another exchange, said CEO Gary Nagle, adding that support from the company’s European investors for its plan to retain coal had been overwhelming.
Investors’ environmental concerns have moderated over the past nine to 12 months with more of them realising the role the fossil fuel could play in energy supplies, Nagle added.
Glencore reported EBITDA of $6.3 billion in first half of 2024, down 33% from a year earlier.
Shares in Glencore were up 0.91% at 396.75 pence at 0745 GMT on Aug. 7.
Graphic: Glencore trades at discount against some of its rivals https://reut.rs/3yuJ9Q7
Editing by George Hay and Oliver Taslic
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