Mining giant Glencore will limit its coal production amid investor pressure

Glencore is not withdrawing from coal. However, the group’s recent announcement is almost the same thing for the stunned public, after expressing their desire to cap coal production. Pressured by investors to align their strategy with the Paris Agreement, Glencore will focus its business on premium coal, which is more resilient and more profitable. The group will also review its affiliation with professional associations that may be involved in lobbies negatively impacting the climate.

Coal from Glencore in Columbia
@Glencore

While presenting their annual results on 20 February, the mining giant Glencore announced that it is committed to capping its coal production to roughly 150 million tonnes per year. This is the equivalent of its 2018 volumes (129.4 million tonnes) and the result of its latest mining acquisitions in Australia.

Glencore CEO, Ivan Glasenberg, assured the public that production will be maintained "globally at current levels", without providing any more details. His decision comes after pressure from major investors that are pushing companies involved in raw material extraction to take rapid action against climate change. They have also asked the group to align with the Paris Agreement objectives.

Focus on resilient assets

Glassenberg responded by assuring that he would give "priority to investments in assets resilient to regulatory, physical and operational risks related to climate change". The company also ensures that it will review its membership in professional associations and check if their policies are consistent with this strategy.

This move is similar to that of the BHP Billiton initiative. By the end of 2017, the company announced its withdrawal from the World Coal Association, the largest coal lobbying organization, by the first quarter of 2018. BHP Billiton’s decision was motivated by differing views on climate and energy policies.

Glencore is far from giving up coal, but will continue operations to maintain "peak production" levels, explains NGO Australasian Centre for Corporate Responsibility. In the coming years, Glencore will focus on premium coal, whose high energy content makes it possible to limit CO2 emissions per unit of energy produced.

A profitable operation

Aside from being a decision solely motivated by global warming, this is also a good business strategy, according to Judge Prakash Sharma, Research Director at Wood Mackenzie, in an interview with the Financial Times. "In a 2-degree scenario, premium thermal coal demand is expected to be resilient compared to other coal types”.

In March 2018, Anglo-Australian competitor Rio Tinto led the way by selling its latest coal asset: the Kestrel mine in Queensland, Australia. The company became the first major global miner to halt extraction of these kinds of fossil energy. Rio Tinto chose to focus on copper, aluminium and iron ore. "The sale of Kestrel creates tremendous value for our shareholders and strengthens our portfolio," explained CEO Jean-Sébastien Jacques.

Ludovic Dupin, @LudovicDupin