Glencore’s new boss faces tough test at the coalface

Glencore has had only three chief executives since it was founded in 1974. Next year it will get a fourth when 45-year-old South African Gary Nagle takes the reins.

He has big shoes to fill — over 19 years outgoing CEO Ivan Glasenberg built risk-hungry Glencore into a $42.5bn commodity trading and mining powerhouse that spans the globe, employing 160,000 staff and contractors in 35 countries.

Mr Nagle also faces big challenges.

The company has come under heavy regulatory scrutiny in recent years including a US probe into possible corruption in developing countries such as the Democratic Republic of Congo.

It must decide on whether to remain in coal mining, a sector out of favour with investors focused on environmental, social and governance criteria — and a division at Glencore currently run by Mr Nagle.

And it needs to give a jolt to a share price that despite doubling since a March low still languishes far below its 2011 flotation price.

“Glencore needs to decide what it wants to be in the post-Ivan, ESG world,” said Paul Gait, a mining expert at Azvalor Asset Management. “My gut feeling is that coal will be separated eventually.”

Now based in Australia, where he runs Glencore’s coal assets, Mr Nagle will move to Switzerland next year. He will spend six months working alongside Mr Glasenberg as he gets to know the company’s most important partners, including Felix Tshisekedi, president of the DRC, and the banks that finance its vast trading operations.

Mr Nagle was in Sydney when Mr Glasenberg anointed him as his successor last week towards the end of an investor presentation in which Glencore announced its ambition to be the first big miner fully aligned with the goals of the Paris agreement on climate change.

Mr Glasenberg did not want Mr Nagle’s appointment to detract from his vision of a new, green-tinged Glencore that will attract climate-conscious investors, according to people familiar with his thinking.

Smelting copper at Altonorte in northern Chile: Glencore produces the metals crucial to the energy transition

The leadership transition comes as Glencore enjoys a tailwind from rising metals prices. If current prices persist, the group could generate $5.6bn of excess cash next year, allowing it to pay down debt and resume dividend payments that were suspended this year. 

From there, Mr Nagle can get to grips with the two big decisions that reflect Glencore’s unique position as a company at both ends of carbon spectrum. It is the world’s biggest exporter of thermal coal but also a big producer of metals crucial to the energy transition — copper, cobalt, nickel and zinc.

At Friday’s event Glencore pledged to reduce its greenhouse gas emissions, including “scope 3” created when customers burn raw materials, to net zero by 2050.

It plans to do this mainly by placing its coal business into managed decline in which reserves are not replaced as they run down. 

Glencore’s cashflow projection for 2021

By setting out a credible pathway to net zero, Mr Glasenberg believes Glencore will be able to hang on to a business it can milk for cash and not be penalised by investors. 

Coal accounts for about 10 per cent of earnings before interest, tax, depreciation and amortisation, and 5 per cent of revenue, so it is not a huge part of its business.

The move has met a positive response. While Glencore’s commitments require careful consideration, they are “significant”, according to Adam Matthews, director of ethics and engagement at the Church of England Pensions Board and co-chair of the Transition Pathway Initiative.

Copper sheets during electrolytic refining in the Democratic Republic of Congo: when and where to increase the metal’s production will be a big decision for Gary Nagle © Simon Dawson/Bloomberg

“It is clear we are fast approaching a moment where a standard on what is sufficiently ambitious and what is not will be determined. Such a Standard will clearly include scope 3 emissions,” he said.

Ultimately it will be up to Mr Nagle to decide whether Glencore can remain in coal or has to demerge the business.

“We believe a coal demerger will eventually happen after Gary Nagle takes over as CEO and Glencore will then be the green wave miner,” said Christopher LaFemina, an analyst at Jefferies.

Mr Nagle will then have another decision to make: when to increase production of the metals — mainly copper and nickel — that will be needed for the energy transition.

Copper demand is increasing but there is a lack of new projects in the pipeline

Deciding when to pull the trigger on mine expansions will be crucial. If Mr Nagle moves too early he risks adding too much supply to the market and depressing prices.

Analysts are not expecting big changes to Glencore’s hard-charging business culture under Mr Nagle, who is seen as “incredibly commercial”.

“We expect a seamless transition from Ivan to Gary,” said Mr LaFemina.

The new chief executive will also want to improve Glencore’s safety record — its has suffered eight fatalities this year — and must decide whether to prune a tail of marginal assets including Glencore’s oil exploration business and its Zambia copper unit. Glencore has a sprawling base of more than 150 industrial assets, according to Deutsche Bank.

Mr Nagle, who comes from the asset side of the business, will also have to get up to speed with its trading, or “marketing”, arm.

One issue over which Mr Nagle has little power are the various regulatory probes the company faces.

In 2018 it was ordered by the US Department of Justice to hand over documents and records relating to possible corruption and money laundering in Nigeria, Venezuela and the DRC over more than a decade.

DoJ investigations usually take at least three years, although the departure of Mr Glasenberg and other senior executives caught up in the inquiries could speed up the process. The company has said it is co-operating with the investigations.

Another challenge for Mr Nagle will be maintaining a good relationship with Mr Glasenberg, whose presence will loom over the business even after his retirement.

Mr Glasenberg has said he has no intention of becoming the company’s next chairman — Tony Hayward cannot continue in the role much longer under the UK corporate governance code. But the outgoing chief will remain a big shareholder, with a 9.1 per cent stake worth almost $4bn.

“If Gary wants to defer to me for help, I will be there to help him if need be, but I definitely do not intend interfering with him,” Mr Glasenberg said. “He must run the company as he deems fit and create value for shareholders.”

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