To Buy or to Build? The M&A Case for Glencore
The commodities giant has a giant war chest to expand its mining and trading empire.
Coal profits put Glencore in position to make a big deal.
Photographer: Bloomberg/BloombergIvan Glasenberg always preferred to buy rather than build as he assembled Glencore Plc. “This company doesn’t trust greenfield projects,” he said in 2017, four years before his retirement as chief executive officer. In two decades, he had created the world’s fourth-largest mining company by buying others, from miner group Xtrata to grain trader Viterra.
Now is the moment for another giant acquisition. The global energy crisis has delivered the company a one-off opportunity to transform itself.
Thanks to eye-watering coal profits, Glencore has its strongest balance sheet since going public more than a decade ago. At the end of 2022, its net debt stood at just $75 million, down 99% from a peak of $35.8 billion at the end of 2013. Last year, its adjusted core earnings jumped 60% to a record $34.1 billion. Half of that — $17.9 billion — came from mining coal.
Even with a self-imposed limit of $16 billion in net debt for an acquisition, Glencore has a war chest now to pursue a serious target. Having settled its bribery and money-laundering troubles with the US Department of Justice and other authorities, paying more than $1 billion in penalties, it can also use its stock for acquisitions. In short, Glencore has money to spend. If not now, when?
Glasenberg’s successor, Gary Nagle, is fully aware of the opportunity and shows the same inclination for dealmaking. In a meeting with investors last week, he said in rapid succession “we want to do M&A”; “it’s part of our DNA”; “a lot of this company has been built on the back of M&A.”
But Nagle insisted, as his former boss did, that he wouldn’t make a purchase for the sake of it. It has to be the right deal at the right price. And right now, neither is available.
In the meantime, the 47-year-old executive, who took the post in 2021, says the commodity miner-cum-trader has plenty of growth potential on its own, by both expanding existing mines – so called brownfield projects — or building new ones — greenfield projects. But without extra tonnage – and none is coming before 2025 -- earnings can only grow via higher prices. And that’s betting on another energy crisis lifting coal to the stratosphere. Coal prices remain high by historical terms, but they have already plunged in early 2023, halving in the past 45 days.