Glencore to buy BHP, Anglo stakes in Cerrejon as majors manage transition out of coal

Diversified miner Glencore is to acquire the entire stakes held by its partners BHP and Anglo American in the Cerrejon thermal coal mine in Colombia, as part of a strategy to manage and eventually exit from its coal portfolio in line with its emissions targets.

Glencore will acquire BHP and Anglo American's respective 33.3% interests for an aggregate $588 million, it said in a June 28 statement. The transactions are expected to close during H1 2022, subject to regulatory approvals.

Anglo American said in a statement that the transaction finalizes its transition from thermal coal. Jefferies International analyst Christopher LaFemina said that "BHP will likely exit thermal coal as well with the sale of its Aussie thermal coal assets in the near future."

BHP last year signaled an intention to exit from its thermal coal assets.

"To further enhance our portfolio for value, risk and returns, we intend to concentrate our coal portfolio on higher- quality coking coals, and are looking at options to exit BMC, New South Wales Energy Coal (NSWEC) and Cerrejon," BHP said August 2020.

A BHP spokesperson told S&P Global Platts on June 28 the company had "set a two-year timeframe and Cerrejon is the first part of that. Options for NSWEC [are] still being explored."

PARIS AGREEMENT

With the announced transaction, Glencore said that it had "carefully considered" its commitment to the goals of the Paris Agreement and its obligation to act as a responsible steward of assets.

"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," Glencore said. "Production volumes are expected to decline materially from 2030."

"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," it said.

Cerrejon's production attributable to Glencore stood at 1.8 million mt in Q1, down 200,000 mt, or 10%, from Q1 2020, reflecting staff absences due to COVID-19 related self isolation or quarantine, and the restart and ramp up of operations following resolution of a strike in late 2020.

Glencore's coal production from own sources fell 23% on the year in Q1 2021 at 24.5 million mt, as the company progressed with its strategy to pull out of the coal business.

COKING COAL OUTPUT ROSE

Production varied according to the coal type. The company reported a 33% year-on-year rise in coking coal output - used in steelmaking -- at 2.4 million mt, while semi-soft coking coal output dropped 25% at 1.2 million mt.

Output of thermal coal, typically used in power generation, fell 27% from a year earlier at 20.9 million mt, Glencore said in a Q1 production report.

Jefferies' LaFemina noted that "despite having a large thermal coal business, Glencore is the only major miner that is fully committed to complying with the goals of the Paris Agreement for Scope 1+2+3 emissions".

Glencore's management announced in the statement that it will increase its medium-term absolute total emissions reduction target (Scope 1+2+3) from 40% to 50% by 2035 on 2019 levels; and introduce a new short-term reduction target of 15% by 2026 on 2019 levels.