Mining and commodity trading giant Glencore is ditching plans to spin off its coal business as shareholders continue to see value in it and aren't sure a metals-only Glencore would have seen a higher market valuation.
After receiving the final regulatory approval for the acquisition of Elk Valley Resources (EVR), the coal business of Teck Resources, Glencore said last month that "we will shortly commence a consultation process to assess shareholder views regarding the potential demerger of the combined coal and carbon steel materials business."
Last week, Glencore's chief executive officer Gary Nagle said "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."
The time for the announcement came on Wednesday, and Glencore said that it had decided to retain its coal and carbon steel materials business following the completion of the consultation process to assess shareholder views.
Shareholders representing an estimated two-thirds of eligible voting shares were consulted for their views.
"Over 95% of shareholders that specifically expressed a preference for retention or demerger supported the retention of the coal and carbon steel materials business, primarily on the basis that retention should enhance Glencore's cash generating capacity to fund opportunities in our transition metals portfolio, such as our copper growth project pipeline, as well as accelerate and optimise the return of excess cash flows to shareholders," Glencore said.
In addition, many Glencore shareholders have also expressed skepticism that a potential remaining business of metals only would raise the company's valuation. Moreover, these shareholders did not see a coal demerger as ESG positive, considering given the wide support for Glencore's latest Climate Action Transition Plan (CATP), the group said.
Shareholders also believe that steelmaking coal is expected to play an important role in supporting the infrastructure needed for the energy transition.
"The Board believes retention offers the lowest risk pathway to create value for Glencore shareholders today," Glencore's chair Kalidas Madhavpeddi said.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More