Coal demergers are a carbon cop-out, Glencore CEO says

Meanwhile, Glencore and Anglo American said they were watching a potential Chinese ban on coal imports from Australia very closely, but so far their cargoes were unaffected.

Mr Glasenberg said Glencore would present its plan for a 30 per cent cut buy 2035 in its "scope 3" emissions (the downstream greenhouse gas output of customers or end-users) at an investor day on December 4.

But the key would be running down its coal mines rather than selling them off. "We see some of our competitors, South32, selling their coal mines. ... How does that help the world to reach the Paris Accord?" he said.

"Those mines then are not depleting or running down, they’re going into the hands of investors, whether the Chinese … or other players who have no intention of reducing scope 3 emissions; if anything, it gives them a free hand to start producing more."

South32 is selling its South Africa Energy Coal business to Seriti, and BHP said in August it would sell or spin off its thermal coal assets. Anglo American has already sold assets in South Africa and Australia, and in May said there was more to come.

Mr Glasenberg admitted, though, that if investors were abandoning the company because of its legacy thermal coal operations, he might have to rethink his stance.

"If we’ve got a whole bunch of investors who say they can’t own us because of our thermal coal holding, then we’ve seriously got to look at it," he said.

"But wouldn’t these investors want to know that the end outcome is that these coal mines stay in the hands of a responsible person such as ourselves, reducing the production of these coal mines?"

The challenge for leaders of the mining industry is to say, 'what are we going to do differently in this space?'

Anglo American CEO Mark Cutifani retorted that Anglo American wouldn't "sell assets on a whim". "In announcing our move to demerge thermal coal, it has taken a lot of work with the government and our stakeholders to make sure everyone’s comfortable that it has been done in a responsible way," he said.

And South32 CEO Graham Kerr said the sale of its South African energy coal business made sense because the half the output was used within that country.

"We think it’s better owned by a South African such as Seriti who can extract some synergies from their existing business and actually create a stronger business," he said.

Coronavirus had slowed that down, but "we’re past that sticking point and are making really good progress".

Mr Glasenberg also poured oil on other troubled waters in the resources sector: he said that although environmental disasters and cultural transgressions affected in the industry's image and reputation, "hard investors also just look at the returns we’re giving them and what type of cash returns".

"Why are we not respected as an industry? Why do we trade at such low multiples? … The reason is because we generally get it wrong. We don’t sit back and generate the cash, let the cash generate; we start getting aggressive and we decide it’s time to build a new mine," he said.

A $2 billion mine would often end up costing $10 billion, and arrive three to five years late, Mr Glasenberg said, but many miners were doing it anyway, to prop up production.

"We always hear the story that when you dig material out of the ground you must replace it - you’ve got to keep your production curve flat and it shouldn’t go down. However, I do believe that maybe your production curve should go down." he said.

"We are mining depleting assets, that’s a fact of life," Mr Glasenberg said. "As you deplete it, you don’t have to replace it. Because if a new project doesn’t give you the right return, why bother? Why not give that money back to the shareholders?

"Don’t build a new mine just to keep that line flat. That’s where shareholders lose confidence in us."

Mr Cutifani agreed that "the focus on balance sheet and return hasn’t been consistent, and our performance has been very volatile. So confidence in the industry is an important issue for shareholders".

But he also said that incidents like Juukan Gorge and the Brazilian tailings dam disasters "do terrible damage to us as an industry".

Mr Kerr said both issues weighed on investors. "The challenge for leaders of the mining industry is to say, 'what are we going to do differently in this space?'," he said.

He hoped the industry's sector-wide initiatives were "an opportunity to almost evolve people in that space which actually allows mining to get back on the general investor radar".

Mr Glasenberg said Glencore was "watching carefully" the deliveries of Australian coal into China.

"They’re a very important customer, so we’re closely monitoring the situation to ensure that we can continue selling into China," he said.

"We’re just watching it, to see the outcome, right now we are having our cargoes discharged and hopefully we’ll continue signing up new contracts in China."

Mr Cutifani said Anglo American was less reliant on China as a coal market, but sold a lot of diamonds and other products into China.

"In terms of Australian operations, we’ve been able to get all of our cargoes in OK. We’re monitoring, we’ve given our views to the Australian government, we would hope that a sensible dialogue could be struck," he said.

"One hopes common sense will prevail. It’s in both countries’ interest, the dialogue, to sort out any differences they may have and make sure that we’ve got a constructive partnership going forward.

"Where they’re trying to encourage both sides to come together; we’ve got an office in Shanghai and we’re trying to understand what we can do to support a better relationship."

Register for unlimited access to Energy news and press releases