Tawanda Karombo
Markets will be keeping a close eye on commodities firm Glencore after it said yesterday that it would let investors know next week whether or not it planned to demerge its coal and carbon steel materials business.
It is unclear at this point what a demerger would mean for its South African operations. A demerger is when the company splits off certain assets to form a separate company.
Gary Nagle, the CEO for Glencore, said, “We are now in the process of consulting with shareholders to assess their views regarding the potential demerger of our coal and carbon steel materials business. We expect to be able to announce the outcome of such engagement and the decision of the board regarding the potential demerger alongside our interim results next week.”
Coal is one of Glencore’s most profitable divisions, driving record returns in recent years. Glencore this month completed a deal to buy the majority of Teck Resources’s steelmaking coal business for $6.9 billion (R125.7bn) acquisition of Canadian steel-making coal miner Elk Valley Resource to enhance its coal-mining business.
However, the company made a major strategic pivot last year, with Nagle unveiling a proposal to split off the unit and list it in New York.
Glencore had long resisted pressure to follow rivals in jettisoning the commodity, arguing that the world still needed the dirtiest fossil fuel and that it was more responsible to run the mines itself than sell them. Pushback to the spin-off plan from several top investors has now thrown the proposal into doubt, Bloomberg reports.
Meanwhile, shares in Glencore yesterday also fell 3.64% in afternoon trade on the JSE yesterday after it singled out rail constraints in South Africa for tipping downwards its coal production for the half-year period to June as it pins its production ramp up of the energy commodity on enhanced capacity from Transnet.
Glencore’s coal production of 50.6 million tons for the half year period to June was lower by 3.6 million tons, or 7%, compared to the same period last year.
Shares in Glencore fell by 3.64% to R98 in yesterday’s afternoon trade on the JSE while its share price is lower by 3.17% and 7.06% in the past seven and 30 days respectively.
It said the lower coal production was mainly a reflection of “export rail constraints in South Africa” as well as the “impact of scheduled mine closures” during the period under review. There was also additional impacts from the “temporary impact of longwall moves” in Australia.
South African thermal coal production under Glencore amounted to 7.9 million tonnes during the interim period, 7% lower than in the same period a year ago.
Glencore had implemented various measures over the period 2023 to 24 “to progressively reduce coal production due to export rail capacity constraints” faced by Transnet. However, Glencore says there is potential to ramp up production from South Africa once Transnet restores its rail export capacity.
“As and when additional rail capacity is restored, the potential exists to increase production rates,” it said.
During the period under review, Glencore was also impacted by a 22% dip in coal prices. Average coal prices received for its South African export coal stood at $101.
Despite this, Nagle said that the company was maintaining its full-year production guidance across its portfolio. It had also added on more steelmaking coal volumes for the second half of this year to between 19 million tonnes and 21 million tons“following successful closing of the EVR acquisition” earlier this month.
“As anticipated, 2024 is expected to be a year of two halves, whereby the tracking of our year-to-date production versus guidance is expected to be caught up during the second half of the year,” he said.
Second half
In the second half, higher production levels are anticipated from African Copper, which is expected to recover from a mill outage in the first half and to access higher ore grades. An additional 30 000 tons is expected to accrue from this.
Glencore expects to report a reduction in net working capital for the first half.
In terms of production, Glencore’s own sourced copper production of 462 600 tons was 2% below the same period last year. Its own sourced cobalt production of 15 900 tons was also below last year’s level by some 5800 tons “reflecting planned lower run-rates at Mutanda in response to the current weak cobalt pricing environment and lower throughput” and cobalt grades.
The company’s production of zinc during the half year to June also tipped 4% to 417 200 tons largely as a result of lower zinc tonnes from Antamina.
There was also a 16% dip in Glencore’s half-year attributable ferrochrome production which stood at 599 000 tons as the Rustenburg smelter remains idled in response to weak market conditions and pending an improved price/cost environment.
BUSINESS REPORT