Call it a transition within a transition. As if shifting the world from fossil fuels to renewable power wasn’t complex enough, look what the Glencore boss Gary Nagle is up to: an in-house job to mirror that. He’s out to turn the FTSE-100 miner, big on dirty thermal coal and historic bribery bloopers, into a cleaned-up green metals combine.
Is he getting anywhere? Well, in theory, yes. In November he rocked up with what, at first glance, looked a counterintuitive move: a $7 billion cash deal to bulk up in coal. He’s buying 77 per cent of the Elk Valley Resources wing of Canada’s Teck Resources. Only this business brings coking coal, the more investor-friendly sort used for steelmaking.
Nagle’s gameplan? To spin off all his coal assets by 2026, say, in New York, where shareholders are far less squeamish about owning the black stuff. And end up with something far more metallic green: a miner and commodity trader big in the likes of copper, nickel and zinc, nicely plugged into the needs of electric cars, battery power, solar panels, wind farms and data centres. In short, either a higher rated standalone business or a nice green takeaway for bigger players, such as Rio Tinto or BHP.
That’s the plan, anyway. Still, against the backdrop of volatile commodity prices, it’s not the easiest feat to pull off. Since January last year, after a fleeting excursion above 2011’s 530p float price, the shares are down from 570p to 386p, dropping another 1 per cent on the full-year results.
The main reason for that? Coal. In 2022, thanks to the ructions in the energy market caused by Putin’s assault on Ukraine, coal had a blowout year: $17.9 billion of ebitda. That tops the whole of Glencore last year, when adjusted ebitda halved to $17.1 billion.
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Coal came in at $8 billion after what Nagle called “a rebalancing and normalisation of international energy trade flows”. But it makes his transformation plan all a bit more jam tomorrow, if that’s the right commodity. There’ll be no coal spin-off until net debt, up to $4.9 billion from $75 million, can absorb the costs of the Teck deal and return to $5 billion: a two-year job in Nagle’s view. And, without freak earnings from coal, shareholder distributions from a group that’s doled out $20.3 billion since 2020, are getting cut: just $1.6 billion last year versus 2022’s $7.1 billion. So, less incentive to stick around for the journey.
True, Nagle has a decent long-term story to tell. Take copper, say. China is the most commodity-hungry nation. And even in a slowdown, “key metals-consuming sectors” — electric cars, solar and wind — all grew by at least 30 per cent last year. On top, despite a 31 per cent drop in Glencore’s copper ebitda to $4 billion, Nagle sees a supply and demand imbalance that will ultimately “play out”. Forecasts for copper mine production fell by almost 1.4 million tonnes over 2023.
So his strategic shift makes sense. Persuading investors to dig in for a slow-motion metamorphosis may be trickier, though.
Heathrow could fly
Pleading poverty is all the harder when the business in question is Britain’s premier airport. So credit to Thomas Woldbye, the newish Heathrow boss, for giving it a go.
It’s just returned to a “small profit after three consecutive years of losses”: an adjusted £38 million pre-tax after handling 79.2 million passengers last year, or not far short of 2019’s pre-Covid record of 80.9 million. The problem? The beastly Civil Aviation Authority has cut airport charges “by 20 per cent in real terms”, so Heathrow will “have to pull every lever” to close a £400 million funding gap over three years.
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Thankfully, unlike his hot air balloon of a predecessor, John Holland-Kaye, Woldbye does not pretend this is the world’s biggest sob story — and for good reason. Heathrow is already one of the priciest airports on the planet. And Woldbye must know that, off last year’s £3.7 billion revenues and £2.2 billion of adjusted ebitda, it should be making serious money.
The issue? Its departure-lounge owners have saddled it with £16.8 billion of net debt: a fair bit of gearing, even in relation to a £19.8 billion regulated asset base, the CAA’s proxy for Heathrow’s value. Debt service costs were a net £1.46 billion, even if the pain was eased by financial hedges that left reported pre-tax profit at £701 million.
It’s one reason, Heathrow can’t afford to build a third runway: an escapade that’s proved politically impossible since 1968 and would probably come with a £30 billion price tag. The other? Sixty per cent of the owners, led by 25 per cent investor Ferrovial, want out. Who’s signing up to back the project?
Yes, Woldbye is not short of demand — he expects a record 81.4 million passengers this year. But with Heathrow capped at 480,000 flights a year, he’s spotted that there are gains to be had from making the two-runway airport more “efficient”. Could better service lead to planes fuller than today’s average of 79.6 per cent? Cut debt, too, and Woldbye would not be thinking a dividend was merely “plausible” but nailed-on. If he’s smart, Heathrow’s profits could really start to fly.
Mighty Quinn pay
Today’s puzzler from banking land. What do you give a boss who’s just taken £10 billion off the share price? That’s right, double the money: a wedge up from £5.6 million to £10.6 million for the HSBC chief Noel Quinn. True, it wasn’t just for yesterday’s efforts. And it’s no easy gig running a political football, always ready for an own-goal, as proved by the full-year figures, starring a $3 billion hit on a Chinese bank stake, a $2 billion exit fee for France, Argentinian hyperinflation and missed forecasts. Still, it wasn’t the best day to be showcasing Quinn’s personal ATM.
