Glencore reports S. Africa losses on coal quality, rail
Glencore has written down its South African coal assets by $611m as the operations suffer quality issues and rail constraints.
The mining and commodities trading group last week released its results for the half year ended in June, and swung into a $233m loss primarily due to impairments of which the South Africa coal write-downs were the largest.
Glencore’s South African coal write-downs were largely due to a lower price environment, but its impact has been magnified by railing troubles.
The mining and trading giant on Wednesday reported an interim loss of $233m, mainly as a result of some $1bn in impairment charges – $611m of which is owed write-downs of the South African assets.
“We took down longer-term prices by something like $10 a tonne… around that, particularly [coal] quality,” Glencore CFO Steven Kalmin told McCloskey during a media briefing.
Equity analysts have also pointed out that by virtue of not having written down other coal assets, Glencore’s impairments would mainly point to quality issues. Kalmin said the logistics challenges in South Africa exacerbated the situation.
“But of course, the price is magnified by a business that is operating at volumes lower than it might have been sort of historically. But for the logistical and other challenges – that is not a new phenomenon, it’s been happening for a while – the number might have been less,” he said.
With four thermal coal operations in Mpumalanga, Glencore is one of South Africa’s largest coal producers, selling coal into both the export and domestic power generation markets.
The South African coal mines are expected to be depleted over time until closure, in line with Glencore’ s decarbonisation aims and a commitment to run down its coal assets responsibly.
Glencore CEO Gary Nagle said the group is encouraged by the collaborative work between Transnet management and private industry.
“They still are not performing up where we would like and what the rail capacity in theory is at well over 70 million tonnes – it’s still in the 50s. There are some weeks that it spikes up and increases. It’s certainly off the lows … But certainly, it is still constrained. But definitely, (we see) green shoots and some upside.”
Glencore’s group adjusted earnings plunged 55% to $2.85bn from $6.31bn partly due to lower coal prices. Average Newcastle and South African index prices fell 36% and 22%, respectively, from the corresponding 2023 first half, according to the interim report.
Despite the challenges, coal is still the largest contributor to group revenue and Glencore’s board last week announced it had decided against its earlier proposal to demerge the coal and metals businesses into separate companies. (see separate story)
This follows consultation with Glencore shareholders the overwhelming majority of which were not in favour of spinning out the coal assets, which now include the world-leading steelmaking coal assets of Elk Valley Resources which Glencore recently acquired from Canada’s Teck Resources.
“Retention should enhance Glencore’s cash-generating capacity to fund opportunities in our transition metals portfolio, such as our copper growth project pipeline, as well as accelerate and optimise the return of excess cash flows to shareholders,” Nagle said.