Glencore's Coal Mine Risks the Company's, Colombia's and Investors' Emissions Commitments
Glencore's coal mining operations in Colombia threaten its commitment to reducing greenhouse gas emissions by 15% by 2026. As a result, Glencore needs to explain to investors how its 15% emissions reduction commitment aligns with its coal production at its Cerrejón mine in Colombia, which produced an estimated 22.65 million tons in 2021.
The coal mine risks Colombia's government commitment to decrease its emissions by 51% by 2030, under the 2015 Paris Agreement signed by 197 countries.
Glencore's largest institutional equity investors together own 26% of the company's share. These investors include Qatar Investment Authority, BlackRock, Vanguard, Harris, Fidelity, and Public Investment Corp. Do Glencore's emissions violate these investors' emissions commitments?
Glencore also has operational risks because it mismanaged the mine. As a result, the mine has caused widespread environmental degradation. In addition, Glencore has deteriorating relations with Indigenous Peoples and Afro-Colombian communities.
Coal prices have averaged $183 since Glencore purchased the mine on June 28, 2021. From 1992 to the purchase date, coal prices averaged $85. The expected price decline means the mine's estimated EBITDA for 2022 at $1.2 billion is forecast to decline to $510 million in 2025. This forecast decline in EBITDA challenges Glencore's strategy of managing the depletion of the key pollutant.
Cerrejón Mine. Source: Cinep
In January 2022, Swiss multinational Glencore became the sole operator of Cerrejón, Latin America's largest open-pit coal mine. Glencore purchased the mine from Anglo American and BHP for an estimated final sale price of $230 million after adjusting for cash flows accruing to Glencore since the sale announcement. The Cerrejón mine is in La Guajira, Colombia, along the Caribbean coast next to Venezuela.
Coal use is one of the leading causes of climate change. Burning coal for energy emits carbon dioxide, a heat-trapping gas that creates global warming.
Global warming's consequences include sea-level rise, flooding, extreme weather, fires, biodiversity loss, and other risks, too.
SwissRe stated in 2021 that climate change may cost the global economy $23 trillion by 2050.
But Glencore has stated it will continuing mining the dangerous pollutant for the next 25 years.
Key risks from Glencore’s mining operations in Cerrejón forecast to 2025 are:
Supported by the current global commodity rally, Glencore's Cerrejón mine added $1.1 billion in EBITDA to Glencore's 2021 record EBITDA of $21.3 billion. Yet, from 2022 to 2025, analysts forecast that Glencore's EBITDA will decline 31% to $14.7 billion by 2025.
Over the same period, analysts forecast Glencore's coal extraction to remain stable at 121 million tons annually.
At the same time, coal-specific adjusted EBITDA is forecast to decline 65% from $6.9 billion to $2.4 billion. Cerrejón coal-specific EBITDA is also forecast to decrease from $1.2 billion in 2022 to $510 million in 2025 (Bloomberg Finance, L.P.).
Coal's high prices over the past eight months coupled with Glencore's "managed depletion strategy" means Glencore may not achieve its 15% emissions reduction by 2026.
Glencore's Cerrejón's mine also has negative impacts on local communities. As a result of the mine using 24 million liters of water daily, the local water table has dropped to 20 to 30 meters below ground. Before, it was 5 meters below ground. Glencore now ships 80,000 liters of water daily to local communities. As a result, Colombia’s Constitutional Court ruled Glencore must stop some of its water extraction plans at its Cerrajón mine.
Glencore's mine operations are also a reputational risk to investors because of labor risks and environmental justice concerns. Afro-Colombian miners went on strike for three months in late 2020 over a wage dispute. Former workers and local Indigenous Peoples' communities blockaded the rail line in summer 2021. Several NGOs filed a complaint with the OECD in January 2021, demanding the coal mine be closed for “serious human rights abuses and devastating environmental pollution.”
The risks of profiting from Glencore and its mine despite its climate, labor, and environmental justice expose investors. For example, BlackRock's iShares passive investment funds own 115 million shares in Glencore with an est. unrealized return % (average) of 55%. One BlackRock fund – its iShares Core FTSE 100 UCITS ETF – alone owns 68 million shares in Glencore with an est. unrealized return % (average) of 53%. How does BlackRock's investment in Glencore align with the investor's emissions commitment?
Glencore’s key opportunities to begin its transition towards a low-carbon, sustainable and equitable economy by 2025 are:
Glencore's Climate Change Taskforce manages its emissions commitments. It needs to publish its quarterly its quarterly key performance indicators for its Scope 1, 2, and 3 pathways to a 15% emissions reduction commitment by 2026. In addition, Glencore should describe how its board of Directors will hold the company responsible for achieving its emissions reduction commitment.
If Glencore does not meet its emissions reduction commitment, what legally binding action will be available to investors to address this discrepancy?
In its earnings call on February 15, 2022, Glencore said that it is "running down our coal business." Nevertheless, Glencore's guidance to analysts says it will increase coal production from 103 million tons in 2021 to 121 million tons for each year until 2026 (Bloomberg Finance, L.P.) How does Glencore manage the decline of its coal production by increasing it?
Glencore has lots of cash on hand. It announced a $4 billion distribution to its shareholders on February 15, 2022 - $3.45 billion in cash and $550 million in share buybacks in 2022.
Can Glencore disclose its quarterly capital expenditures up to 2026 to achieve its 15% 2026 emissions reductions commitment?
Institutional investors need to hold Glencore's executive and board accountable for their 15% emissions reduction commitment. Can Glencore explain in detail how its ownership of its Cerrejón fits into its quarterly emissions reduction pathway to achieving its 2026 emissions reduction commitment?
Investors require clarity on Glencore's emissions reduction commitment and precisely how its ownership in the Cerrejón coal mine undermines these investors' emissions reductions commitments.
When exposed to Glencore's coal mine operations and emissions, how do investors execute their own emissions reduction commitments?
We encourage Glencore's investors and Glencore's leadership to address these emissions commitments resulting in a time-bound, quarter-by-quarter roadmap towards achieving the company's 15% Scope 1, 2, and 3 emissions reduction by 2026.