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Glencore’s activist is misguided but not unhelpful

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A bulldozer fills a truck with coal near Newcastle, Australia, February 20, 2008. REUTERS/Mick Tsikas

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LONDON, Nov 30 (Reuters Breakingviews) - Emboldened by its recent success at Danone (DANO.PA), activist Bluebell Capital is trying its luck at Glencore (GLEN.L). With coal prices near record highs, the upstart fund has chosen an unfortunate moment to argue that investors would be better served spinning off the group’s extensive holdings of the pollutant. The intervention isn’t entirely unhelpful, though.

With just 200 million euros under management, Bluebell is a diminutive David to the $63 billion Swiss commodity Goliath. Yet its defenestration of Danone Chief Executive Emmanuel Faber means it cannot be taken lightly, especially given heightened climate sensitivity after COP26. As the world’s biggest exporter of thermal coal, the worst climate polluter, Glencore is undeniably problematic.

However, it’s hard to see its arrows piercing the defensive shield Gary Nagle has built. Glencore shareholders are currently a relatively happy bunch. Some 94% of them just voted in favour of the company’s plans to hit net-zero carbon dioxide emissions by 2050 by running down its coal mines gradually instead of spinning them off. And its shares are up 56% this year, comfortably outperforming iron ore specialists Rio Tinto (RIO.AX), (RIO.L) and BHP (BHP.AX), (BHPB.L). That’s largely down to soaring prices of its two main commodities – copper and coal.

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Citi reckons the latter will generate $7.3 billion of EBITDA this year, a third of Glencore’s total. But Bluebell argues that without coal, investors will put a more favourable 3.8 times valuation multiple on the $13 billion of EBITDA that Glencore is likely to get from “future-facing” metals like copper, cobalt and nickel. According to Bluebell’s sums, the non-coal division trades on around 2.6 times, pointing to a potential $15 billion boost in enterprise value.

However, the experience of Anglo American (AAL.L) suggests a trickier transition. Since May’s spinoff of Thungela Resources (TGAJ.J), its South African thermal coal mines, Anglo shares are down 11%. And the transaction has exposed Anglo to accusations of climate buck-passing. Within weeks of cutting Thungela adrift, the latter was laying out grand plans to expand rather than shrink its coal mines. Preventing the same thing happening with Glencore via by-laws or dual-class shares, as Bluebell suggests, will be an uphill legal struggle.

Yet Bluebell’s efforts may not be wasted. Glencore has already brought forward an interim emissions target by five years. But its 2050 shutdown is a decade beyond when the International Energy Agency says even developing economies need to quit using coal. Pressuring Glencore into further accelerations is still worth doing.

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CONTEXT NEWS

- Activist fund Bluebell Capital has launched a campaign to force commodity giant Glencore to spin off its thermal coal division.

- Glencore says it will run down its coal mines by 2050, in keeping with a company target of net-zero carbon dioxide emissions by the middle of the century.

- In a Nov. 8 letter, Bluebell argued that Glencore’s coal mines were increasingly unpalatable to investors, and that broadening its potential shareholder base via an exit from coal would boost its share price by 40% to 45%.

- Bluebell has 200 million euros of funds under management. It did not disclose the size of its Glencore stake.

- Glencore shares were down 1.6% at 351.2 pence by 0948 GMT on Nov. 30, the first trading session after the letter was reported.

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Editing by George Hay and Oliver Taslic

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