Thanks to eye-watering coal profits, Glencore has its strongest balance sheet since going public more than a decade ago. At the end of 2022, its net debt stood at just $75 million, down 99% from a peak of $35.8 billion at the end of 2013. Last year, its adjusted core earnings jumped 60% to a record $34.1 billion. Half of that — $17.9 billion — came from mining coal.Even with a self-imposed limit of $16 billion in net debt for an acquisition, Glencore has a war chest now to pursue a serious target. Having settled its bribery and money-laundering troubles with the US Department of Justice and other authorities, paying more than $1 billion in penalties, it can also use its stock for acquisitions. In short, Glencore has money to spend. If not now, when?Glasenberg’s successor, Gary Nagle, is fully aware of the opportunity and shows the same inclination for dealmaking. In a meeting with investors last week, he said in rapid succession “we want to do M&A”; “it’s part of our DNA”; “a lot of this company has been built on the back of M&A.”But Nagle insisted, as his former boss did, that he wouldn’t make a purchase for the sake of it. It has to be the right deal at the right price. And right now, neither is available.In the meantime, the 47-year-old executive, who took the post in 2021, says the commodity miner-cum-trader has plenty of growth potential on its own, by both expanding existing mines – so called brownfield projects — or building new ones — greenfield projects. But without extra tonnage – and none is coming before 2025 — earnings can only grow via higher prices. And that’s betting on another energy crisis lifting coal to the stratosphere. Coal prices remain high by historical terms, but they have already plunged in early 2023, halving in the past 45 days.
Glencore has told investors it has four big projects — in Chile, Peru, the Democratic Republic of Congo and Argentina — that would allow it to cash in if copper prices rise. But rather than build, it can buy.
Let’s start first with what Glencore isn’t interested in. The company sees value in small deals in aluminum — say in the $1 billion-apiece area — but it’s not interested in acquiring a large aluminum company like US-based Alcoa Corp.Copper should be the preferred target. About two years ago, Glencore held detailed merger talks with Canada’s Teck Resources Ltd., which ended without a deal. Still, buying Teck makes the most sense for Glencore. The synergies are obvious. Teck is a major shareholder of the Quebrada Blanca copper mine in Chile, which lies just a few miles from Glencore’s own Collahuasi mine. Teck owns a stake in Peru’s Antamina copper mine, in which Glencore also has a major interest. And Teck has a coal division that would fit with Glencore’s own one. The Canadian miner is worth $22.5 billion, plus debt, while Glencore’s market capitalization is nearly $80 billion. Free of net debt, Glencore can swallow it.If only Teck was for sale. The company, controlled by the Keevil family under a dual-share structure, has other plans. If the Keevils ever put it up for sale, it’s likely to attract the kind of bidding frenzy Glencore tries to avoid. Even so, having tried once, Glencore surely will try again. And it wouldn’t be the first time the company bid in an auction. It did so with Viterra, beating US rival Archer-Daniels-Midland Co., for the Canadian grain trader.Beyond Teck, the number of attractive targets shrinks rapidly. US-based copper miner Freeport McMoran Inc. is too expensive. Canada’s First Quantum Minerals Ltd. is fighting with Panama’s government for control of a key asset. Others appears too small to move the needle.Glencore executives often sound frustrated with their rivals’ reluctance to sell. Ego prevents deals, or so the thinking goes. They aren’t wrong. But what really stops deals is money. Put a good offer on the table, betting on a higher-for-longer copper price, and there’s a good chance the egos surrender to the deal. And today, for the first time in a long time, Glencore has the cash to do so.
More From Bloomberg Opinion:
• Coal Is Still King of the Energy System: Elements by Javier Blas
• The End of Copper’s Lost Decade?: Elements by Clara F. Marques
• Inflation Is Catching Its Breath. Should We Worry?: John Authers
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is coauthor of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
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