(Alliance News) - Glencore PLC on Monday said it has agreed to buy out its Cerrejon coal mine joint venture partners, Anglo American PLC and BHP Group PLC, for USD588 million.
For London-based Anglo American, the sale will mark the wide-ranging miner's exit from thermal coal. Anglo will be selling its 33% stake in the Colombian mine for USD294 million.
"Today's agreement marks the last stage of our transition from thermal coal operations," said Anglo American Chief Executive Mark Cutifani.
Melbourne-based BHP's 33% stake will be bought for around USD294 million as well, bringing the total price tag for Glencore to USD588 million.
"Selling BHP's financial interest to a current Cerrejon shareholder who understands the operation represents a strong outcome for Cerrejon and the stakeholders it supports," BHP said in a statement.
BHP said there will be a further impairment charge of around USD80 million after tax, recognised as an exceptional item in the miner's second half results, which are due on August 17.
Baar, Switzerland-based Glencore said the acquisition is set to close in the first half of next year.
"Glencore is paying USD588 million, but at current coal prices and the deal expected to close in [the first half of 2022], aggregate cash consideration will be approximately USD230 million, making estimated investment payback period two years from closing," commented Liberum analyst Ben Davis.
Glencore noted the implications the deal might have for its commitment to achieve the goals of the Paris Agreement on climate change.
"Based on our long-term relationship with Cerrejon 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 said.
"The alternative is one or more new JV partners acquiring these shares and compromising the sustainable operating philosophy of Cerrejon, and extending production beyond the current mining concessions."
Glencore added that it has reviewed its planned fossil fuel production profile and updated its commitments.
These include the miner increasing its medium-term absolute total emissions reduction target to 50% by 2035 on 2019 levels, from the previous target of 40%. Glencore also introduced a new short-term reduction target of 15% by 2026 on 2019 levels.
"Glencore is the only major that can feasibly make these cuts to total emissions, unless the other majors look at shutting down their iron ore businesses. Buying coal assets whilst also increasing pollution targets is treading a fine line, but we do believe this is the most responsible way forward for the environment," Liberum's Davis said.
"Glencore has been involved with Cerrejon for more than 20 years. We know the asset well and believe that we are the most responsible steward for Cerrejon at this stage of its lifecycle," the company added.
"Disposing of fossil fuel assets and making them someone else's issue is not the solution, and it won't reduce absolute emissions," said Glencore CEO Ivan Glasenberg
"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," added Glasenberg.
On Monday morning in Johannesburg, Glencore shares were 0.1% lower at ZAR62.04 each, BHP was 1.2% higher at ZAR428.42 and Anglo American was up 0.1% to ZAR585.82. In London, Glencore shares were down 1.0% at 312.20 pence, BHP lost 0.3% to 2,153.00p and Anglo American fell 0.8% to 2,944.00p.
By Greg Roxburgh; gregroxburgh@alliancenews.com
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