Glencore buys out Cerrejón partners BHP and Anglo American
Glencore has reached agreement with its joint venture partners BHP and Anglo American to acquire their respective 33.3% interests in the Cerrejón thermal coal in Colombia.
The Swiss company expects to pay $588 million in cash for the combined 66.6% stake owned by Anglo and BHP when the deal completes in the first half of 2022.
Mark Cutifani, Chief Executive of Anglo American, commented: “Today’s agreement marks the last stage of our transition from thermal coal operations. During that transition, we have sought to balance the expectations of our wide range of different stakeholders as we have divested our portfolio of thermal coal operations, in each case choosing the exit option most appropriate for the asset and its distinct local and broader circumstances.”
Glencore is committed to achieving the goals of the Paris Agreement
“Glencore carefully considered how best to respond to the sale notices in a manner which reflects our commitment to achieve the goals of the Paris Agreement and acknowledging our obligation to act as a responsible steward of assets,” the company said in a statement.
“Based on our long-term relationship with Cerrejón and knowledge of the asset, we strongly believe that acquiring full ownership is the right decision and the progressive expiry of the current mining concessions by 2034 is in line with our commitment to a responsible managed decline of our coal portfolio. Production volumes are expected to decline materially from 2030.”
Glencore has reviewed the impact of owning 100% of Cerrejón and is confident its climate commitments will not be compromised by the partner buy-out. The company has further reviewed its planned fossil fuel production profile and is now able to commit to more aggressive total emission reduction targets as follows:
- increasing its medium-term absolute total emissions reduction target (Scope 1+2+3) from 40% to 50% by 2035 on 2019 levels1; and
- introducing a new short-term reduction target of 15% by 2026 on 2019 levels.
Glencore’s focus remains its total emissions footprint, including scope 3 emissions, which is critical in order to achieve the goals of the Paris Agreement. Glencore continues to prioritise capital allocation towards commodities essential for the transition to a low carbon economy.
Ivan Glasenberg, CEO, Glencore:
“Glencore has been involved with Cerrejón for more than 20 years. We know the asset well and believe that we are the most responsible steward for Cerrejón at this stage of its lifecycle. Disposing of fossil fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions.
"We are confident we can manage the decline of our fossil fuel portfolio in a responsible manner that is also consistent with meeting the goals of the Paris Agreement, as demonstrated by our strengthened total emission reduction targets.”
BHP deliberates ditching fossil fuels for greener mining
The world’s biggest miner, Australian-based BHP, is supposedly considering withdrawing from a multi-billion dollar contract, which would see the company generate more than US$2bn due to mounting pressure over aligning its business with ongoing climate concerns and ESG-compliance measures.
Exiting the agreement would mean BHP escalate its distancing from oil and gas and subsequently cut down on the amount of fossil fuels used by the company when mining.
It’s estimated that the petroleum business being debated upon could actually be worth around US$15bn but is still under talks to be put up for sale.
Global Mining Giant Considers Greener Future
BHP has made itself clear that it wants to avoid becoming unable to sell its assets. As competition within the market increases following higher numbers of oil giants wrestling with investors to deal with climate pressure, so too are the number of mining rivals looking to make environmental changes for the future.
However, BHP currently has the upper hand as a stalwart mining company that established itself back in the 1960s, allowing it the time to grow and dominate over other fast-appearing mining competition.
Mike Henry, BHP Chief Executive, has an optimistic outlook for the future of oil and gas despite worries over rising demand to align his business with the Paris Climate Agreement. Henry argues that prices remain promising due to a lack of industry-wide investment.
BHP’s petroleum business won’t be easy to say goodbye to. Forecasted to generate around 6% of profits during the ongoing financial year (US$2bn), and around US$1.6bn revenue produced by BHP petroleum in the six months leading to December 2020, BHP is due to take a hit no matter what agreement they choose.
On the other hand, distancing itself from thermal coal and petroleum would arguably aid the company’s case to possible - and valuable - investors who may be required to fund BHP’s increased output to places such as Australia and Mexico in the near future.
BHP considers cutting billion-dollar contract to aid climate
An exit away from petroleum has the potential to be “a powerful corporate catalyst,” says Dominic Kane, Analyst at JP Morgan.
“We believe an exit would likely ring-fence BHP’s exceptional cash flows for non-fossil fuel organic growth, mergers and acquisitions and generous shareholder distributions since BHP could avoid a major new capital investment phase this decade in petroleum.”
BHP is also set to sanction a giant US$5.7bn Canadian potash mine in August of this year, already seeing potash as a long-term substitute for gas and oil going into the future. The company has also previously announced plans to abandon its 80% share in its joint endeavour with Mitsui, owner of two lower-quality mines in Queensland, Australia.
BHP is scheduled to report its annual results on August 17, after which it may become clearer on whether the company will choose to focus its shift to a low-carbon economy or whether it will stay with its current contract into the coming year.