LA Private

Glencore struggles amid coal price collapse

Glencore, a top five global miner, emerged as the biggest victim of the 2023 collapse in coal prices, experiencing a 50% plus slump in earnings and slashing dividends. The company seeks to lower and control debt, aiming to ironically buy more coal amidst the price slide.

Glencore intends to acquire Teck Resources’ coal unit for $US6.9 billion and subsequently float off its existing coal operations, including its substantial business in Australia by 2026.

In 2023, the Switzerland-based miner reported a 75% plunge in net income to $US4.28 billion from $US17.32 billion in 2022. Adjusted earnings before interest, tax, depreciation, and amortization halved to $US17.10 billion from $US34.06 billion. Revenue slipped 15% to $US217.83 billion from $US255.98 billion in 2022, including turnover in the company’s commodity trading business.

Glencore reduced its dividend to 13 US cents a share, down from 56 US cents a share in 2022. Net debt rose to $US4.92 billion from $US75 million in 2022, prompting spending cuts and cost-saving measures to facilitate the Teck acquisition and debt reduction.

The company attributed the financial downturn to the rebalancing and normalization of international energy trade flows, with coal, liquid natural gas, and oil prices significantly declining. The slump in coal prices alone accounted for a $US9.9 billion ($A15 billion) loss in earnings, notably impacting its Australian operations.

Australian coal sales totaled 73.8 million tonnes in 2023, generating $US12.692 billion in revenue, a decline from $US19.358 billion in 2022. Adjusted earnings nearly halved to $US6.795 billion from $US12.769 billion.

Glencore faces financial strain due to rising debt, rising interest rates, falling revenues, and earnings. The company’s net interest cost surged 42% to $US1.9 billion, with gross payments increasing to $US2.515 billion.

The acquisition of Teck assets and the planned demerger of thermal and coking coal businesses into a separate company by 2026 exacerbate Glencore’s financial challenges. The demerger is contingent upon reaching a revised $US5 billion net debt cap within 24 months from the Teck deal closing.

With a historical net debt target of $US10 billion, Glencore’s current net debt of $US4.9 billion poses a dilemma. To manage debt and maintain growth, the company suspends share buybacks, reduces dividends, and implements stringent cost-cutting measures, contrasting with its previous $US20.3 billion in buybacks and dividends since 2020.