New research: Glencore’s risky appetite for coal

Coal mining giant Glencore Plc is expanding its already large coal exposure into the headwinds of the global energy transition, yet has not demonstrated to investors how it plans to manage this risk, according to new research from ACCR.

Appetite for risk: Glencore's growing coal portfolio assesses the risks of Glencore’s growing coal portfolio, including its recent acquisition of Elk Valley Resources (EVR).

The report comes as Glencore announced this week it is cutting planned coal production, equivalent to 5-10% of Glencore’s 2024 thermal coal production, at its Cerrejón mine in Colombia due to the prolonged collapse in prices. Thermal coal prices have dropped to their lowest level since 2021.

Key findings in the report include:

• Glencore plans to grow coal production nearly 30% by 2050, but even under non-Paris aligned outcomes, the IEA projects less thermal coal will be required.
• Chinese coal demand has a material impact on the global coal trade, and as one of the world’s largest coal exporters, Glencore’s business is exposed to changes in demand. With renewables forecast to become increasingly significant to China’s energy mix, and coal facing increasing competition and displacement from renewables, the outlook for sustained coal demand over the medium to long-term remains uncertain.
• The large-scale water contamination from EVR’s metallurgical coal mines means that Glencore has inherited responsibility to administer one of the world's largest water quality management plans, with ongoing treatment costs. Future additional costs and legal and regulatory action remains a possibility. Glencore continues to exclude the EVR assets from its group climate reporting, which means investors have limited insight into how the company is progressing towards its emissions targets. The EVR acquisition increased the company’s met coal reserves fivefold.
• Our modelling suggests that if Glencore includes the EVR assets in its group climate reporting and adjusts its baseline as per the Greenhouse Gas Protocol, it is unlikely to meet its 2030 emissions reduction target.

Commenting on the research, Naomi Hogan, Company Strategy Lead, ACCR, said:

“Glencore’s Chief Executive says ‘cash is king’, but to deliver long-term shareholder value, an appetite for cash must also come with an appetite for managing the risks of betting heavily on coal.

“Glencore’s decision to scale back production at Cerrejón in response to lower coal prices brings into focus the company’s broader exposure to coal market dynamics, particularly in relation to its other large, long-dated assets and expansion projects. This raises questions for investors around the company’s strategy and risk management.

“Glencore says it is committed to a ‘responsible phase-down’ of thermal coal production but continues expanding its coal profile without any semblance of a plan to manage the long-term risks for investors.