Reuters, by Karen Kwok
LONDON, Feb 15 (Reuters Breakingviews) - Gary Nagle has an angel on one shoulder and a devil on the other. Instead of picking a side, he seems to be trying to keep both happy. The boss of $80 billion commodity giant Glencore (GLEN.L) is minting money from coal while prices are high, but planning to keep production of the fossil fuel roughly steady until 2025. It’s a plan that risks pleasing no one, while also dirtying the company’s valuation.
Unlike rivals Anglo American (AAL.L) and Rio Tinto (RIO.AX), (RIO.L), London-listed Glencore is still mining coal. Right now, that’s an extremely lucrative business. A global energy squeeze has pushed up demand and prices. Its EBITDA from the fuel grew more than threefold in 2022, and accounted for more than half of the group’s $34.1 billion total.
That highly polluting bonanza presents a dilemma for Nagle. On the one hand, purely financially motivated investors might want him to make even more money by ramping up production. On the other, green investors like Legal & General Investment Management and HSBC Asset Management are pushing to find out more details about how Nagle reconciles his plans with the objectives of the Paris Agreement on climate change, according to the Financial Times. Activist investor Bluebell Capital Partners last year argued that Glencore should spin off the coal division, following in the steps of Anglo American.
Nagle is not caving in to either side. His plan is to hang on to coal and keep annual production steady at around 110 million tonnes up to 2025. Using the prodigious cash flows from that business, he can reward shareholders while also funding investments in copper and cobalt. Over the longer term, he’ll then start shutting coal mines, with at least a dozen closures planned before 2035.
The risk is that Nagle’s compromise pleases neither the green crowd nor the others. That’s arguably reflected in an enterprise value that’s roughly 4 times forecast EBITDA for the next 12 months, based on Refinitiv data, compared with 4.5 and 5.2 for Anglo and Rio respectively. Just over three-quarters of Glencore’s investors supported Nagle’s climate strategy last year. He should brace for a lower number in 2023.