Glencore banks on acquisitions in green transition

Diversified miner and commodity trader Glencore says it remains on the acquisition trail and is particularly keen to add businesses that support energy needs while investing in its transition metals portfolio.

This is despite a concoction of higher commodity prices, logistical constraints in SA and persistent supply challenges presenting challenges for the group in 2023. 

“The company believes that the best approach for growth in our industrial business is to consider promising acquisition opportunities while progressing potential organic growth opportunities in our existing transition metals portfolio,” group chair Kalidas Madhavpeddi said in the company’s most recent annual report.

Glencore has in recent years modified its portfolio towards commodities that are essential for the transition to a low-carbon economy and global energy needs as society pushes for a sustainable future.

Glencore’s exposure to assets that produce fossil fuels relates mainly to its coal mining operations in Australia, SA and Colombia and its Astron oil refining asset in SA.

The group said it was increasingly confident of its strategy as energy transition commodities such as copper, nickel, cobalt, zinc, vanadium and aluminium have been touted to become substantially more important given their roles in the technologies and infrastructure that underpin low- or no-carbon energy sources.

Glencore has thus been investing in transition commodities, including its South American copper assets and projects, its African copper and cobalt operations, the Kazakhstan polymetallic and Brazilian bauxite and alumina investments alongside its Canadian INO nickel life-extension projects.

“We acquired a 30% equity stake in the Alunorte alumina operation in Brazil alongside a 45% equity stake in Mineracão Rio do Norte.” said Madhavpeddi. “Further, we continued our efforts to develop a leading pipeline of development opportunities in copper, acquiring the remaining interest in the Mara brownfield copper project in Argentina, as well as the balance of the shares in PolyMet.”

Multiyear reset

In copper, Glencore acquired the remaining 56.25% interest in the Mara project that it did not already own, as well as the balance of PolyMet shares, about 18%.

CEO Gary Nagle said these copper acquisitions complemented the multiyear reset of Glencore’s copper business unit to prepare it for growth.

“We have disposed of noncore assets and sought to align around large, long-life, low-cost resources in key copper-producing regions,” said Nagle. “Crucially, our copper portfolio offers capital-efficient growth possibilities, with most of our copper projects leveraging existing infrastructure.”

Glencore said that in 2023 SA exports through the Richards Bay Coal Terminal were affected by rail performance. However, transporting additional volumes by truck to ports helped shore up overall annual exports from SA by 5%.

The group stated that coal production of 113.6-million tonnes was 3% higher than in 2022, reflecting higher productivity in SA and a year-on-year easing in certain external factors that constrained capacity, such as wet weather and blockades.

Demand

Nagle said that while investing in its transition metals portfolio, Glencore believed that the likely scale and pace of global mine project development required in certain minerals would ultimately struggle to meet the commodity demand that the transition was expected to generate.

However, he said Glencore was well placed to participate in “bridging this gap in supply” through the flexibility that exists in the business to respond to global needs, while the expected interest rate cuts would ease the pressure.

“The strength of our diversified business model across industrial and marketing, focusing on metals and energy, has proved itself adept in a range of market conditions, giving us a solid foundation to successfully navigate the near-term macroeconomic uncertainty, as well as meet the resource needs of the future,” he said.

“Though the current macroeconomic environment remains challenging, global economic growth is forecast to bottom out in 2024. Expected interest rate cuts and corresponding restocking along the supply chain are likely to bring an improvement in demand conditions in Western markets later in the year,” said Nagle.

As part of the regulatory approval process relating to the 2019 acquisition of a 75% shareholding in Astron Energy, Glencore and Astron Energy entered into certain commitments with the Competition Tribunal and the economic development department.

These commitments included investment expenditure of as much as R6.5bn until 2024 to ease congestion and improve the performance of the Cape Town oil refinery, contribute to the rebranding of certain retail sites and establish a development fund to support small and black-owned businesses in Astron Energy’s value chain.

In November Glencore announced it had acquired a 77% effective interest in the entirety of Teck’s steelmaking coal business, Elk Valley Resources (EVR), for $6.93bn cash, on a cash-free, debt-free basis, subject to a normalised level of working capital. 

On completion, the announced acquisition of EVR should lift Glencore’s steelmaking coal production to about 30-million tonnes a year.

Madhavpeddi said the acquisition unlocked the potential, subject to shareholder approval, for a value-accretive demerger of its combined coal and carbon steel materials business.

“We will undertake a consultation process after the close of the transaction to assess shareholder views,” he added.

Glencore said it could demerge the combined company only once it had sufficiently deleveraged towards a revised $5bn net debt cap, adding that this was expected to occur within 24 months from close.

Its shares closed at R102.95 on Friday, a gain of almost 83% over the past three years.

gumedemi@businesslive.co.za