Investor Tribeca presents Glencore with ideas to raise shareholder value – How

Company: Glencore PLC (GLEN-GB)

Business: Switzerland-based Glencore PLC produces and markets a diverse range of metals and minerals, including copper, cobalt and zinc. It also markets aluminum/alumina and iron ore from third parties. The company is a producer and marketer of coal, with mines in Australia, Africa and South America. In addition, Glencore also markets crude oil, refined products and natural gas. The company physically sources commodities and products from its global supplier base, and it sells them to customers all over the world, transporting commodities by sea, rail and truck. Further, Glencore is involved in the recycling of copper and precious metals.

Stock Market Value: ~53 billion pounds (4.35 pounds per share)

Activist: Tribeca Investment Partners

Percentage Ownership:  n/a

Average Cost: n/a

Activist Commentary: Tribeca Investment Partners is a specialist active investment and advisory firm with offices in Sydney, Melbourne and Singapore. The firm was founded in 1999 by Tribeca chairman David Aylward. Tribeca leverages its multi-asset class expertise across equities, credit and natural resources, and offers a range of services to clients across asset management, private wealth management and corporate advisory. While not explicitly an activist, Tribeca is willing to engage its portfolio companies in order to improve shareholder returns and corporate governance.

What’s happening?

On March 13, the Financial Times reported that Tribeca had sent a letter to Glencore’s board, calling on them to (i) transfer the company’s main listing to the Australian Securities Exchange from London; (ii) increase dividends by discontinuing share buybacks; (iii) spin-off its trading division; and (iv) maintain control of its coal operations. Tribeca has been a shareholder of Glencore for seven years and has been engaging with management for a year.

Behind the scenes

Glencore is a Swiss-incorporated diversified mining company with operations in over 35 countries, primarily engaged in the production and marketing of metals and minerals, energy resources and commodities trading. The company has excellent core asset quality in copper, zinc and coal, as well as a world-leading commodity trading business. Consensus FY25 projections estimate that Glencore’s earnings before interest, taxes, depreciation and amortization is comprised of approximately 25% to copper, 18% to commodity trading, 18% to metallurgical coal, 17% to thermal coal, as well as 22% to zinc, nickel, alloys and others. Despite its core asset quality, strong fiscal position and excellent management team, Glencore has delivered a total shareholder return of 36% since its listing on the London Stock Exchange in May 2011, a profound underperformance compared to peers BHP (+295%) and Rio Tinto (+218%). In addition, despite a quadrupling of EBITDA, Glencore’s enterprise value has risen by only 15% and has undergone continued de-rating from a max EV/EBITDA of 11.5 times in the early 2010s to five times today.

Glencore has had a fluctuating relationship with its coal operations for several years now. Given its listing in London and the general attitudes of ESG-minded investors across Europe, there has been a consistent climate of hostility toward fossil fuels. Notably, Bluebell Capital Partners agitated for a demerger of Glencore’s thermal coal business in 2021. CEO Gary Nagle pushed back, thinking a rundown of the company’s mining operations on a 30-year time horizon was a wiser strategy. However, in 2023, after acquiring a 77% interest in Teck’s steelmaking coal business, Glencore stated its intention to demerge its combined coal and carbon steel businesses. Tribeca thinks this is a non-starter. From a financial perspective, the firm thinks that the coal business delivers strong and stable capital returns in the otherwise cyclical earnings profile of its heavy metals portfolio and should yield a diversification premium. Tribeca notes the transition of the ESG movement over the past several years and astutely argues that part of that transition is that it is better for fossil fuel businesses to be in the hands of responsible stewards who will attempt to optimize ESG factors rather than divest to an owner who does not consider these factors in its operations.

Tribeca also strongly advocates for a relisting of the company to Australia from London, believing that this will accelerate net inflows and provide optionality for corporate activity. The firm argues that London is no longer the home of mining, ascribing only 7% of the bourse’s capitalization to mining versus 16% for the ASX. In addition, London houses virtually no coal miners, and valuations for diversified mining operations are materially higher on the ASX. Tribeca…