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An activist investor urging Glencore to quit the world’s dirtiest fossil fuel says the miner can spin off its coal division and cut production by using a dual-share structure to retain control.
Bluebell Capital Partners, a London-based hedge fund that has targeted Danone and is currently embroiled in a bitter battle with Belgian chemicals company Solvay, wrote to the miner and commodities trader last month outlining its plan. of demerger, which involves the creation of a coal company with A and B shares.
“The real debate should not be about ‘whether’ Glencore should spin off from coal, but ‘how’ a spin-off should be executed, taking into account both the financial and environmental considerations that underpin Glencore’s strategy to deplete coal. coal responsibly,” the letter reads. , which was seen by the Financial Times.
Bluebell partners Giuseppe Bivona and Marco Taricco asked Glencore last year to spin off its thermal coal business, arguing it had become an investment barrier.
Glencore’s new chief executive, Gary Nagle, pushed back on the idea, telling investors and analysts in December that it was in the best interests of the company and “the planet” to dismantle its mines within 30 coming years.
“None of our major investors are asking to get out of coal,” Nagle said at the time. “Actually, they realized. . . that maybe the fallout isn’t the right storyline.
This comment was interpreted by analysts and investors as a reference to Thungela, the South African coal company spun off from Anglo American. Shortly after that company began operating as a separate business last year, its CEO, July Ndlovu, signaled plans to ramp up production.
Bluebell’s proposal is an attempt to solve this problem, while allowing Glencore to move forward with its ramshackle strategy, which the fund accepts as correct.
Under Bluebell’s proposed plan, Glencore would divest the coal business with a dowry to fund mine rehabilitation and a two-class structure, which have historically been frowned upon by UK investors.
Glencore would retain the “A” shares. These would give him control of the split company and marketing rights to all of its coal, but only a 9.09% economic interest in its operations. Existing Glencore shareholders would get ‘B’ shares and a 90.91% economic interest.
“By decoupling governance and economic rights, Glencore would be able to continue to exercise responsible stewardship, while separating coal for the benefit of shareholders,” the letter said.
Glencore declined to comment.
The company is expected to reveal an 80% rise in adjusted earnings before interest, taxes, depreciation and amortization to $21.2 billion when it reports annual results on Tuesday thanks to higher prices for its key commodities, especially coal and copper. Analysts also predict a cash return of $3 billion.
Since Nagle took the reins in July, shares of Swiss company Glencore have risen 36% and are now worth around $75 billion, trading at a valuation similar to that of its peers, even though it has great activity. in coal.
In the letter, Bluebell also points out that 10% of Glencore’s capital is held by member groups of DivestInvest, which is pushing investors to sell existing fossil fuel investments within three to five years. It also says coal makes Glencore less attractive as a merger or takeover target for a rival.
“Furthermore, the significant exposure to coal makes Glencore a less attractive partner, as coal is effectively a ‘poison pill’ in an industry where further consolidation is needed and expected,” the letter said.
