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Glencore making hay while the sun shines (on coal)

March 8, 2022

Australia’s biggest thermal coal producer – Glencore – made loads of money in 2021 on the back of high coal prices in particular, and is forecasting another great year in 2022. But it still plans to be out of coal entirely by 2050, and winding back production well before then.

Glencore is not a normal mining company – it was primarily a commodities trader before it got into direct mining and a large part of its activities are buying and selling minerals and agricultural commodities globally. For that reason, and because it has a long history of operating in regions with poor governance and witholding disclosure of aspects of its business, it is not an easy company to understand. Here we focus on the coal mining results.

However, right up-front the company says it has set aside US$1.5 billion to pay for settlement of long-running investigations into its affairs, including for bribery and market manipulation, by regulators and justice authorities in the USA, UK and Brazil. And the company says there are other ongoing investigations for which it has as yet made no provisions.

The company also had four workplace fatalities in 2021, whereas BHP and Rio Tinto claim to have had no fatalities for three years.

If we stick to the financial results, the results are impressive. Net profit lifted to US$5 billion, a huge turnaround for a loss of US$1.9 billion in 2021. Revenue leapt from US$142 billion to US$204 billion.

The overwhelming reason was good prices, including in coal. Copper was the biggest profit centre, with US$7.9b in cash flow after operating costs. Then coal – mostly Australian – with US$5.6b. A huge jump on the US$1.2b it made in 2020.

Thermal coal Australia was just under US$7 billion in revenue on 62 million tonnes of coal, with US$3.2 billion in cash flow after operating costs. Coking coal Australia figures were almost US$2b in revenue on 13.6 mt of coal and US$960 million in cash flow. These are huge cash margins; Glencore claims an average cash margin per tonne of coal of US$50.60.

But 2022 is looking even better for Glencore, again in coal. Its forecast is that will produce 121 million tonnes of coal with cash flow after operating costs of around US$10 billion (more than double 2021!). It is projecting a cash margin of US$80.90 per tonne, and the forecast thermal coal price for 2022 is US$175 per tonne.

Despite these windfall profits in coal, Glencore is not investing in new coal projects. Its growth pipeline of projects shows none in coal. While coal production jumps from 103mt in 2021 to 121mt in 2022 (mostly due to buying out Anglo American and BHP in the large Cerrejon mine in Colombia), it plateaus there.

The company has re-iterated its net zero emissions target for 2050 – including the emissions of its customers! It says it plans to reduce emission by 15% by 2026, 35% by 2035, and 100% by 2050. These targets mean the company plans to shift out of coal production over that time period.

So Glencore really is “making hay while the sun shines”, or making good profits out of coal due to a major price spike, but is not planning on a long term future in coal.

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