After The Bell: The tricky dilemma that is Glencore
First off, the company has made out like bandits because it decided to hold on to its huge coal assets. It did so in contrast to, say, Anglo American which, under heavy investor pressure, unbundled its South African coal assets into Thungela in June last year. In an amazing turn-up for the books, Thungela’s share price rose from R22 at listing to around R280 now. If Anglo shareholders had kept their shares after the demerger, they too have made out like bandits. But if you didn’t, and you decided to follow the advice of the experts and divest from coal, you might be kicking yourself — and your financial adviser.
The whole sector has been an amazing jumble. Think about BHP, for example, which to much fanfare decided to sell some of its less valuable thermal coal assets (electricity-producing coal as opposed to metallurgical coal or “coking coal”) in 2021. The company sold some, including a huge mine in Colombia, but couldn’t find buyers for others. What luck! The company then did a complete U-turn earlier this year, and decided, well, let’s keep ’em. BHP claimed that the surging coal prices made the assets more valuable and investor attitudes had shifted.
What they mean by that is that investors circa 2021 were hugely concerned about the issue from a climate-change point of view and companies felt their attractiveness diminishing. But when the coal price jumped, investors decided on, let’s call it, a “different approach” to climate change. That approach would entail holding on to the money, while promising to close the mines in a “responsible” way, ie, later.
The other big global miner, Rio Tinto, decided to exit coal entirely and you have to say, from an investment point of view, it hasn’t been a success. All the share prices of the big miners are up over the past three years, but of the four (Anglo, Rio, BHP and Glencore) the out-and-out winner has been Glencore.
So you might think that after a share price rise of 150% over three years, Glencore is trading at a peak. Turns out not so much, because the earnings flow has been so strong, it outpaced the price rise. All of the big miners are cheap, with price-earnings ratios below, or around, 10, but Glencore’s is five. That is ...