Glencore coal strategy currently looking a good one. Just ask Thungela Resources

ONE wonders if Gary Nagle, CEO of Glencore will been able to resist a dig at his opposite numbers at Anglo American, South32 and BHP which exited their thermal coal assets over the past two years.

Market prices for the fuel have been excellent over the past 12 months. Just look at the Anglo spin-off, Thungela Resources which today said in a trading statement that it will post R65.81 to R66.76 a share in full year earnings compared to a loss in the previous year.

The numbers are not entirely comparable because this is the first 12 months Thungela has been in existence. It also bought back some shares in November. But did Anglo shareholders or society really benefit from the spin-off?

The coal mines are still pumping and according to market rumour Thungela CEO July Ndlovu is looking to conduct merger & acquisition deals in an effort to extend the company’s footprint.

Speaking in December, Nagle said that “Investors looking at Thungela Resources say they think that is the wrong approach. The overwhelming feedback [from Glencore shareholders] is that wasn’t the correct one.”

Glencore is due to report its full year numbers on Tuesday (February 15) where coal’s contribution to earnings before interest, tax, depreciation and amoritsation is expected to be about 22% of total, second only to copper (37%), according to a report by RBC Capital Markets.

The strategy to retain its coal assets in favour of a run down in production over time will also benefit from the glow generated of Glencore’s overall numbers where payout and yield potential are expected to dominate proceedings. The group’s exposure to battery minerals is also boosting its rating.

Summarising the prospects for Glencore in a pre-results note, Deutsche Bank concluded: “In sum, the business is in strong shape and we continue to see a compelling re-rating story, driven by the company’s sector leading shareholder returns, low reinvestment needs, an undervalued transition metals business and potential for further improvements to the portfolio”.