Glencore’s CEO, Gary Nagle, finds himself in a high-stakes game. He’s got the copper mines everyone’s drooling over, but he’s also saddled with a massive coal business that’s like a bad smell at a fancy party. Other big mining companies have been running away from coal faster than a cheetah on fire, leaving Nagle with a tough decision: clean up the coal mess or kiss those juicy merger deals goodbye. Let’s break down the drama:
- The Problem: Glencore is stuck with a huge coal business no one wants.
- The Goal: To get in on the mergers & acquisitions (M&A) action, especially in the copper space.
- The Solution: Get rid of the coal—but how?
- The Options: Dump the coal unit on shareholders, list it on the stock market, or keep it and suffer.
The M&A Frenzy: Why Everyone’s Hooking Up
Mining bigwigs are in a rush to merge and acquire, and there are several reasons why. First, the demand for minerals like copper is going through the roof, driven by the need for wind turbines and data centers. Second, there’s been a bit of a downturn in Chinese demand, so these companies are looking to consolidate their positions and make big moves.
Glencore even approached Rio Tinto, a company almost twice its size, showing just how eager everyone is to get in on the action. The sheer size difference between Glencore and Rio really highlights the desperation to consolidate. And then there’s the failed attempt of BHP to merge with Anglo American which shows that everyone is trying to become a copper powerhouse. These attempts underline the M&A frenzy among mining CEOs to combine, as they seek to build up exposure to assets like copper, and cope with falling Chinese demand.
Glencore’s Coal Albatross
Here’s the kicker: Glencore’s cheap valuation isn’t because they’re a bargain bin find. Nope, it’s because of their heavy reliance on coal. A whopping 38% of their profits will come from coal, largely thanks to their acquisition of Teck Resources’ coking coal business. This acquisition, while it may have seemed like a good idea at the time, has only made the situation worse. They’re now more exposed to coal than ever, making them less attractive to those M&A dance partners.
Adding insult to injury, Glencore’s debt is also a concern and it is nearing their self-imposed limits. According to Jefferies forecasts, the net debt is just over $10 billion. The problem is, while their coal business brings in the cash, it’s also a major turnoff for potential merger partners who want clean, green assets. It’s like trying to date with dirty laundry – not the most attractive situation!
The Coal Exit Strategy: A Fork in the Road
Nagle has a few options to get rid of the coal baggage:
Option 1: Dump it on Shareholders
Glencore could spin off the coal unit and give the shares to existing shareholders. While this sounds like a quick fix, it means saying goodbye to the coal division’s sweet cash flow, which is kind of essential for managing Glencore’s debt. That’s like letting go of your right hand – sure it frees you up a bit, but you’re losing something pretty useful.
Option 2: The Partial Listing
Another option is to list a portion of the coal business (say, 20%) on the stock market and sell down more over time. This move would not only help the market adjust to the idea of a $25 billion coal business but would also give Glencore some much-needed capital. According to Breakingviews calculations using an average coal rivals’ multiple of 3.8 times for 2025, and assuming the unit makes $6.5 billion of EBITDA in that year as per Visible Alpha data, the value of the business will be roughly that amount.
Option 3: List in the U.S.?
With Donald Trump’s pro-coal stance, listing in New York could be a smart move. US investors are more likely to be accepting of “dirty” energy stocks. This could provide an appealing avenue for Glencore to offload its coal business.
Now or Never
For Nagle, this isn’t just a business decision; it’s a make-or-break moment. He needs to decide soon whether Glencore wants to play with the cool kids in the M&A scene. It’s time for some real bold action, or Glencore will find themselves stuck with a massive coal business and missing out on the party.